How Shareholder Activism is Forcing Corporate Change over Climate Crisis

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The annual round of big corporate AGMs is upon us, with mining giant Rio Tinto and big oil companies BP, Shell, Exxon, Statoil and Total all having their meetings around this time of year. That creates an opportunity for shareholder activists that want the companies to clean up theirย act.

The oil and gas industry and its products account for half of global carbon dioxide emissions. So altering the course of the fossil fuel industry is the key to meeting global carbon targets.ย ย 

The NGO CDP offers a snapshot of how prepared the fossil fuel industry is for a major low carbon transition. The answer is: not very. It ranked 11 of the largest and highest-emitting global oil and gas companies. According to the report, four out of the eleven are graded โ€˜Eโ€™ for their climate governance andย strategy.

This needs to change if the world is going to limit warming to the promised two degrees or lower. Shareholder activism is one strategy to push for thatย change.

So hereโ€™s an outline of what shareholder activism is, the AGMs coming up, and the changes activists areย demanding.


Big Polluter AGMs inย 2018

BP Manchester on 21 May 2018
Shell the Hague 22 May 2018 (with presentation in London two days later).
Exxon Dallas Texas 30 May 2018
Total June 1 2018
Statoil 15 May 2018, Stavanager, Norway
Rio Tinto: the AGM for Rio Tinto plc was held in London on 11 April 2018. The AGM for Rio Tinto Limited was held in Melbourne on 2 Mayย 2018.


What is Shareholderย Activism?

Hereโ€™s how shareholder activism works: activists buy a few shares in a company, which gives them access to the AGMs as shareholders. Sometimes it even gives them votingย rights.

That means groups of shareholder activists can come together to try and force companies to adopt more climate-friendly policies, or at the very least disclose how efforts to prevent global warming might affect the companyโ€™s bottomย line.

Dylan Tanner, Executive Director of think tank InfluenceMap told DeSmog UK:

โ€œWe have been tracking climate lobbying and trade groups for several years and working with investors on the corporations of concern to them. I ย feel 2018 will be the year shareholders get tough on companies who maintain links to egregious lobbyists holding back critical policy progress on a key existential threat to our commonย future.โ€

Campaign group ShareAction describe the three core elements of shareholderย activism:

  • Building a movement for change in the investment system by working with people inside and outside the industry to challenge itsย methods;
  • Unlocking the positive potential of the investment system by working with large and small investors to stop unsustainable corporateย practices;
  • Reforming the investment system by advocating for change in the policies, governance, and incentives that drive behaviours in the investmentย industry.

But how much difference can a few minor shareholder make, when making profit from fossil fuels is woven into the makeup of Big OIlย companies?

Jeanne Martin, Senior Campaigns Officer, from Shareaction told DeSmog UK:

โ€œThe divestment movement put the issue of climate change on the agenda of some of the worldโ€™s largest investors, and created the space for forceful engagement toย happen.โ€

โ€œInvestor engagement with teeth holds the key to freezing investments in new fossil fuel infrastructure and high-carbon projects, and reallocating capital either back into positive climate solutions โ€“ or the pockets of theirย shareholders.โ€

Martin said itโ€™s a potentially powerfulย approach.

โ€œInvestors are slowly waking up to the challenge. The last few years have seen some of the worldโ€™s largest investors defying management on climate issues and speaking out about their disappointment at the lack of companiesโ€™ progress in this area โ€“ the 2017 resolutions at Exxon and Occidental Petroleum being primeย examples.โ€

Danielle Fugere of As We Sow, Americaโ€™s leading shareholder activism group told DeSmog UK:

โ€œShareholder action can be effective in moving corporations to change, but asking businesses to change their very business model takes more time. Weโ€™ve seen action from oil companies in reducing operational greenhouse gas emissions, producing carbon asset risk reports, creating board committees to address climate change, etc., but very little action to change their core products and businessย models.โ€

โ€œWe believe large shareholders can play an important role in achieving measured transitions from oil and gas companies, achieving the goals of helping to ensure a two degree world while reducing risk and strengthening bottom lines of companies. In the short term, transition means moving away from tar sands, deep water, Arctic oil, and other similar high carbon/high costย projects.โ€

โ€œThis capital discipline will increase company value, while reducing risk of stranded assets. Over the longer term, companies will need to become truly diversified energy companies, shrink their oil & gas assets, or diversify in other ways (or all of the above). Without an orderly and planned reduction of oil and gas assets, however, we are likely to see tremendous value destruction as demand inexorably declines while the market remainsย oversupplied.โ€

So what are shareholder activists asking of companies thisย year?

BP andย Shell

While both companies are publicly committed to the Paris climate agreement, their actions are characterised by an inability to shift to low-carbon activities which represent only a tiny percentage of theirย activities.

BPโ€™s low-carbon investments constitute just 1.3 percent of its total expenditure, while Shell has pledged to invest three percent of its expenditure in low-carbon solutions by 2020. Both companies lack a bold solution to the problem of peak oil demand, which could be with us as early as 2021, according to former Shell CFO, Simonย Henry.

Michael Chaitow, Senior Campaigns Officer at ShareAction,ย says:

โ€œShell and BP want to have their oil and drink it too, by advocating for the landmark Paris Agreement to limit global temperature rises to below two degrees Celsius, while planning for scenarios that would violate it. Thereโ€™s an uncomfortable discrepancy between Shell and BPโ€™s public support for a low-carbon economy and their actual businessย planning.โ€

Shell is facing a battle on climate change, after a shareholder group filed a resolution asking the company to set specific emission-reduction targets. Shellโ€™s CEO recomended shareholders reject the resolution and instead โ€œtrustโ€ him to help the company cut itsย emissions.

A Shell spokesperson said: โ€œWeโ€™re pleased the key proxy agencies support the view of Shellโ€™s board of directors that the resolution is not in the best interests of the company or its shareholders. ย We share the objective of Follow This for Shell to show leadership in the energy transition but we consider their resolution unnecessary as we have already outlined an approach, through our industry-leading net carbon footprint ambition, that is wider-ranging and moreย progressiveโ€

Royal Dutch Shell will also face difficult questions after an investor group urged shareholders to challenge executive pay and the companyโ€™s response to a fatal accident in Pakistan in which 200 people died in the Punjabย province.

The company was criticised for its โ€œexcessiveโ€ executive pay. Chief executive Ben van Beurden’s total pay is 471 percent of his base salary, City AM reported.

A Shell spokesperson told DeSmog UK โ€œit is important to understand that the fuel tanker was owned and operated by a Shell Pakistan Limited sub-contractor, and thus operating outside the operational controls of Shell Pakistanย Limited.โ€

โ€œShell takes safety extremely seriously. ย Last yearโ€™s tragedy in Pakistan has been discussed by Shellโ€™s Board of Directors, and we continue to assess the lessons we can learn fromย it.โ€

Regarding executive pay, the spokesperson said: โ€œThe policy is a measurable and performance based plan, and as previously stated by ISS, Shellโ€™s bonus scorecard appears in line with the Companyโ€™sย strategyโ€.

BP also faces a rebellion over shareholderย pay.

Shareholders are being urged to vote against the โ€œunacceptableโ€ pay of chief executive Bob Dudley, whose remuneration is 48 times higher than the company’s average employee. They will vote on the resolution at the AGM on Mayย 22.

Rio Tintoย Zinc

Shareholders with $1.8 trillion assets under management want Rio Tinto’s climate lobbying links firmly on the agenda at its Sydney AGM this week, but their concerns go further than climate change. The company’s response to its governance on the issue has left investors unsure whether its top-line statements on climate can be relied on atย all.

This growing problem of โ€˜misalignmentโ€™ – ย where the voice of the corporation doesnโ€™t match its actions or its covert support for lobby groups – is becoming moreย obvious.

As Brynn Oโ€™Brien, Executive Director of the ethical investment group Australasian Centre for Corporate Responsibility told DeSmog UK:

โ€œAs a major asset owner and energy user, Rio Tinto has an interest in sensible, predictable climate and energy policy at a national level. Rio’s CEO has said that the company aims to be ‘part of the solution’ to climateย change.

โ€œYet the company continues to fund, with shareholders’ money, lobby groups that constitute significant blockages in our global ability to deal with the threat of climate change. In calling attention to this misalignment, we hope to improve governance around lobbying activities that risk the future of shareholders’ assets and theย planet.โ€

Last week saw a shareholder revolt at Rio Tintoโ€™s London AGM over what is being called โ€œoutright climateย hypocrisyโ€.

Major UK institutional investors in Rio Tinto used their voting power in protest against the companyโ€™s affiliation with obstructive lobby groups on climate change.ย ย 

Activist lawyers ClientEarth climate lawyer Sophie Marjanac told DeSmog UK:

โ€œThe miner may be pulling out of coal, but it canโ€™t claim its hands are clean while funding lobbies that keep coal very much alive. This is outright climate hypocrisy and at the London AGM, investors demandedย action.โ€

โ€œYou cannot say you are actively working to tackle climate change while pouring money into pressure groups that exist to keep the road open for high-carbon energy projects. It is disingenuous and a threat to the value of investorsโ€™ shares. The board must give this serious issue the attention itย deserves.โ€

Exxon

After a year of political and legal skirmishes, Exxon remains the worst of the worst in terms of failing to address its polluting activity. According to CDPโ€™s report, โ€œExxonMobil performs below its peers in its emissions performance and wider climate governance and strategyย considerations.โ€

As a report from 2015 shows much like the recent reports that show Shell knew long ago about the negative impacts it products have on the climate, Exxon knew too.

Scientific American reported that: โ€œExxon was aware of climate change, as early as 1977, 11 years before it became a public issue, according to a recent investigation from InsideClimate News. This knowledge did not prevent the company (now ExxonMobil and the worldโ€™s largest oil and gas company) from spending decades refusing to publicly acknowledge climate change and even promoting climateย misinformation.โ€

According to an analysis by NextGen Climate published by the Huffington Post this week, Exxon gave more than $6.5 million to groups that deny fossil fuels contribute to global warming between 2008 and 2015. The company vowed nine years ago to stop funding groups that promoted misinformation about climateย change.

Last year saw major a shareholder revolt with 62 percent of ballots cast forcing the company to re-think the way it communicates the risks from climate change and increaseย transparency.

As You Sow filed a business planning, low carbon transition resolution with Exxon this year, but it was omitted by the SEC. It asked the Company to outline plans for how it will transition to a 2 degree world which must rapidly move away from fossilย fuels.

Chevron

The American giant Chevron is also facing intense pressure to change practice. Americaโ€™s leading shareholder activism group has filed a resolution with Chevron thisย year.

As We Sowโ€™s Fugere, told DeSmog UK that it asks the company to report โ€œon how it is planning to bring its business model in line with a two degree world. This could mean reducing the carbon intensity and/or the quantity of the fossil-fuel based products it produces each year, bringing more renewables online, reducing investments in future oil & gas development, diversifying the company, among otherย strategiesโ€

โ€œThrough this resolution, shareholders not only want to reduce the risk of stranded assets and retain the stability of their companies, but also demand that Chevron affirmatively become part of the solution in addressing climate change. Its current business plans are in line with IEA projections of business as usual, which equate to a 2.7 degree or higherย world.โ€

In a company statement Chevron said, โ€œChevron strives to contribute to the ongoing conversation about climate change.โ€ It pointed to two reports that discuss climate risk.ย ย 

โ€œWe encourage interested stakeholders to review our latest report to gain an understanding of Chevronโ€™s current views on climate changeโ€, the companyย said.

Beyond Fossil Fuelย Companies

But the focus isn’t just on fossil fuel companies but wider corporate support for climate science denial orย obstruction.

On May 1, students from campaign group People & Planet stormed the stage at Barclays AGM demanding they follow HSBCโ€™s lead and stop financing coal & tar sands – the dirtiest fossilย fuels.

Each armed with single 25p shares in Barclays, activists entered the meeting unchallenged, and ground it to a halt making their demands crystalย clear.

A spokesperson from People & Planet told DeSmog UK: โ€œIn May 2017, Barclays joined a ยฃ5.5bn credit line for Kinder Morgan, most of which is going to the Trans Mountain pipeline. In total, the bank has ยฃ4.381 billion investments in the fossil fuelย industry.โ€

โ€œThe Trans Mountain pipeline would transport one of the dirtiest of fossil fuels from the Canadian Tar Sands to Vancouverโ€™s harbour. Tar sand oil emits 20 percent more greenhouse gases than regular one when extracted and burnt, its extraction contaminates the water sources of indigenous people, its spills are catastrophic, and its pipelines cross indigenous land without their consent – just a very dirtyย business.โ€

Kinder Morgan is now consulting shareholders on whether to continue with the project, with a decision to be announced by Mayย 31.

*

This article was update to include details of the Exxon shareholder activism by As You Sow not known to us at time ofย publication.

Image: CC by 2.0/Jamesย Lee/Flickr

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