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BP AGM-Who’s Next to Aim for A?

21st April 2015 | Can investor groups establish a new global standard for climate risk transparency and disclosure?

The 98.28% vote in favour of the climate and carbon risk Resolution 25 at the 16th April BP AGM has been roundly welcomed by members of the ‘Aiming for A’ investor group with the decisive result seen as the beginning of a wider series of engagements by the UK based coalition of asset owners and managers.

 

“Today’s decision is the culmination of three years of steady engagement and demonstrates the effectiveness of an active approach to ESG and structural risk questions by pension funds and other institutional investors,” Local Authority Pension Fund Forum Deputy Chair Ian Greenwood said in a statement posted by ‘Aiming for A’ on the Church of England Media Centre.

 

Over 30 LAPFF member funds either co-filed or publicly stated their support for the resolution and the combined holding of the Forums members voting at BP approached 3%.

 

Edward Mason, Head of Responsible Investment at the Church Commissioners pointed to potentially wider significance of the successful engagement:

 

“The ‘Aiming for A’ coalition’s engagement with BP has prompted an unprecedented response by an oil and gas major and its institutional investors.”

 

“BP’s commitment to increased disclosure on its climate change strategy will set a new standard and is a significant development in the relationship between institutional shareholders and the oil and gas industry on sustainability.”

 

Faith based networks were active in gathering the wide base of co-filers and investor support required to meet the 100 shareholder threshold required under UK law to file the special resolution and the 75%+ vote required for it to carry.

 

Julie Tanner, Assistant Director of Catholic Responsible Investing at US based Christian Brothers Investment Services attended the annual meeting and spoke in support of Resolution 25 on behalf of North American faith based investor groups emphasized the need for more cross ocean cooperation amongst institutional investors:

 

"Given the pivotal role that business can play in addressing climate change, it is imperative that effective shareholder collaborations like the ones developed by members of the Interfaith Center on Corporate Responsibility and the UK Church Investors Group continue and grow."

 

With the Shell AGM at The Hague on 19th May facing a similar ‘Aiming for A’ sponsored resolution and the Shell Board having previously indicated their support in January, expectation is high that the 75% threshold to carry will again be met.

 

The unprecedented action of 100 global asset owners and managers including-in a break from previous policy- the giant Norwegian SWF publicly declaring their voting intentions in advance of the BP meeting and the 98.28% vote indicates some investor desire for more detailed climate risk based disclosure.

 

Yet the longer-term significance of both the resolutions partly rests on whether investors can continue to coalesce around similar goals at other oil and gas majors.

 

A gap could emerge between the European based companies who are domiciled in markets where climate and carbon risks are broadly accepted as a political and economic reality and the USA where the issues are more fiercely contested.

 

The proposed Shell/BG Group merger if approved will create a Dutch based, FTSE100 listed conglomerate committed to reporting and engaging with shareholders on climate. The French based Total SA, Italian ENI and Norwegian Statoil are also amongst the top 20 of global oil and gas producers and will no doubt be watching the outcome of the current vote rounds with BP and Shell.

 

The  US situation is mixed. Exxon, following their 2014 success in having shareholders withdraw their climate resolution, has courtesy of a decision of the SEC , seen off a more sophisticated financial based challenge of a shareholder resolution calling for long-term capex on exploration for high cost reserves to be wound back and a commensurate increase in distributions to long term investors.

 

In contrast the SEC had determined no action and waved through a broadly similar resolution for the May 27th Chevron AGM. A solid vote outcome in the 20%+ range will give proponents of the ‘less capex-more dollars’ tactic to extract immediate value some confidence for the future. Investors will have to wait till 2016 for the next opportunity at Conoco Phillips.

 

Others like Valero and Marathon Petroleum both face very reasoned emissions target resolutions sponsored by Mercy Investment Services at their respective end April 2015 annual meetings. In the face of board opposition and wider investor somnolence they are unlikely to carry.

 

In the meantime, the SEC remains under pressure with a $US1.9t group of primarily pension fund investors sending correspondence immediately following the BP meeting success. A seven page letter signed by retirement funds as far afield as Local Government Super in Australia and Batirente in Quebec called on the regulator to enforce more disclosure by US oil and gas companies on carbon related risk issues, a continuation of active shareholder pressure on the regulator to take a firmer position.

 

Differing perspectives have emerged to date from the campaign. Live tweets from the AGM continued the use of social media particularly by LAPFF as a direct channel to participants and the activist group ShareAction as part of their wider UK AGM season campaign. The Guardian duly noted that carbon pricing and climate issues dominated the meeting whilst, this Huffington Post UK comment from Edward Mason was broadly positive, this blog from a young activist supporting Resolution 25 from the floor of the meeting reflected a refreshing, if slightly sceptical view.

 

A searching Carbon Brief analysis of the longer term impact of the ‘Aiming for A’ win at BP and recent activities unsurprisingly concludes that real success rests with the company living up to their new and wider shareholder commitments from 2016. An outcome that fits in well with the steady but doggedly continuous engagement style favoured by the UK local authority funds and faith based investors that underpin ‘Aiming for A.’

 

For institutional shareholders facing global high visibility campaigns promoting divestment and with heavy weight voices like the PRI instead urging active engagement and robust stewardship on climate risk issues, an intriguing prospect emerges around those companies who are prepared to be more open about the risks to their business models and inherent asset valuations and those that aren’t.

 

A real transatlantic gap is possible in future; particularly if the biggest US players spend the next few AGM cycles strenuously resisting institutional investor backed shareholder resolutions as has been the pattern for several years.

 

Establishing a de-facto global standard of transparency and disclosure on climate and carbon risk could be contingent on the effectiveness of combined shareholder engagement strategies amongst the listed majors on the eastern side of the Atlantic divide.

 

Success with Europeans and a sharper contrast with US companies may also provide some relatively immobile targets for the divestment movement to fix on rather than the blunt one solution fits all campaign at present.

 

The next obvious way station is the Shell AGM in mid May. A big yes vote for Resolution 21 at The Hague will create further momentum and leave ‘Aiming for A’ with two solid wins under its belt. The keen eyed will also be looking to the concurrent May Statoil AGM and following annual meetings for signs that investor engagement within the sector can extend the ‘new standard.’

 

The BP result has undoubtedly given a boost to active pension funds and asset managers in their ongoing climate risk dialogue with global energy companies.

 

Over the next 12-18months, PIRC Alerts and now many others will be watching this space.

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