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Transatlantic Gap in Oil and Gas Grows

26th May 2015 | Energy companies divide as shareholder groups move closer

Reports from Bloomberg and Reuters point to energy companies BP, Shell, Statoil, Total SA and ENI forming a new European based lobby group in response to pressure being created by climate politics, shareholder action and divestment campaigns.

 

The decision comes on the back of recent decisions by BP, Shell and Statoil to support shareholder “Strategic Resilience 2035 and Beyond”” resolutions calling for significantly increased company disclosure on climate and carbon risks, commencing in 2016.

 

The 2015 AGM season has been marked by investor groups stepping up their engagement and campaign strategies prior energy company annual meetings. Increasingly common is the call for ‘pre-declarations’ to build momentum prior to an AGM.

 

The UK based Aiming for ‘A’ investor coalition successfully combined social media and faith based networks to gather more than 100 asset owners and managers from 11 countries that were prepared to ‘pre-declare’ and go public in their support for recent climate risk resolutions at the 16th April BP and subsequently at Royal Dutch Shell.

 

Following the record vote at BP, Swedish pension funds AP2 and AP4 then sponsored a similar resolution that carried overwhelmingly at the 19th May Statoil SA annual meeting.

 

Meanwhile US giants Exxon and Chevron are again locked in battle with shareholder groups in the run up to their May 29th AGMs, continuing the established pattern of previous years.

 

Both companies are vigorously opposing resolutions being promoted by US faith-based investors to set GHG emission targets. Chevron is also fighting an innovative “dividend harvesting” resolution promoted by Arjuna Capital designed to hedge long term business model risks by reducing exploration capex budgets  and lifting  investor returns via dividend payments or share buybacks.

 

As with the UK campaigns the US investor networks and NGOs are adopting more public tactics in the run up to key AGM votes, heightening scrutiny on asset owners and managers voting stances.

 

With a database comprising more than a thousand international pension and retirement funds, the new voteyourpension platform - initially launched by the Asset Owners Disclosure Project (AODP)  to support the Chevron dividend harvesting resolution - now has the potential to become a powerful tool in the hands of NGOs and shareholder groups seeking asset owners take a more active stance on climate governance issues.

 

International ‘pre-declarations’ have been adapted by the Tri-State Coalition for Responsible Investment and Interfaith Centre for Corporate Responsibility to highlight their Chevron and Exxon proposals. The May 6th launch of investorclimatedeclarations.org complete with twin lists of pension funds and asset owners supporting the emissions target resolutions represented a significant step up from the initial UK approach around BP and Shell.

 

Both TSC and ICCR are sponsoring Resolution 8 at Chevron requesting the board adopt long-term, quantitative, company-wide targets for reducing GHG emissions that take into consideration the global commitment to limit warming to 2deg. A similar resolution before Exxon is being sponsored by the Sisters of St. Dominic of Caldwell New Jersey who argue that the failure of the Company’s management to set public goals has impacted its ability to reduce overall emissions.

 

 

Behind the public campaigns is the rising international cooperation between faith based investor networks and mutual based pension funds, a development noted by seasoned business correspondent Dina Medland who has also highlighted leadership from Pope Francis and the coming Papal Encyclical on climate change as adding further pressure on energy companies.

 

Aiming for ‘A’ in the UK already has a cross-denominational supporter base and a close relationship with the Local Authority Pension Fund Forum and leading UK asset managers like Rathbone Greenbank. US and Canadian faith based networks help gather the 100 individual shareholders required under UK law to file the original BP and Shell resolutions. Their quiet influence helped build asset manager backing for the subsequent votes.

 

In turn, LAPFF was one of the UK shareholder groups to declare support for the faith based investor resolutions before the two US energy companies.

 

A broad base of both asset owners and managers will now be awaiting the wave of additional information to be disclosed by BP, Shell and Statoil in 2016.

 

Heightened shareholder engagement and the coming November COP 21 Paris conference is further influencing the positioning of EU based energy companies.

 

The decision by European oil majors to form their own industry group is no surprise when seen against the backdrop of investor scrutiny and ongoing international climate politics. The growing divide in the industry over its response to climate change was visible at the recent CERA Week in Houston, the annual get together of global oil and gas.

 

There is already speculation that French Total SA and Italian based ENI may well respond to positive engagement around Aiming for A style Strategic Resilience resolutions as institutional investors seek to establish a de facto global standard on transparency.

 

If investor cooperation can be maintained into next year, the post Paris AGM cycle could see a fascinating prospect of the Exxon and Chevron boards considering opposition to a shareholder backed climate resolution identical to that which their European competitors are already reporting on.

 

Institutional investors who have worked closely on this years campaigns now have a unique window of opportunity to press the US giants.

 

A transatlantic gap in oil and gas is emerging over climate, carbon pricing, emissions targets and transparency on business model risks. Proxy season 2016 results will further signal how deep it becomes.

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