Shell vote highlights asset managers’ climate divide

Welcome back.

Multiple UK asset managers have pitched themselves as forward-thinking on ESG issues, joining the investor group Climate Action 100+ and issuing bold statements on cutting pollution.

Yet several of the UK’s biggest money managers recently voted against a shareholder proposal that backers call a litmus test of climate seriousness. As I discuss in today’s newsletter, the development reveals the state of play around shareholder resolutions, which some big institutional investors are approaching more cautiously.

Shareholder proposals

Please don’t take my . . . corporate governance tool

Shell’s annual shareholder meeting last week was interrupted by climate protesters chanting “Shell kills” to the tune of country singer Dolly Parton’s “Jolene”.

While the protesters were ejected, the cultural influence of the American south may still have made its way into shareholder voting when three of the UK’s biggest asset managers took a more sceptical stance on a closely watched climate proposal.

Legal & General Investment Management, Schroders and Abrdn voted against a resolution asking the oil major to adopt emissions-cutting targets aligned with the Paris agreement, in a sign of UK investors peeling off from EU peers in their approach to climate issues.

A group of 27 Shell investors, including Europe’s largest asset manager Amundi, co-filed the resolution, which was co-ordinated by activist shareholder Follow This. It ultimately received the support of about 19 per cent of voted shares — a significant shareholder revolt, but slightly down from 20 per cent support last year.

UK-listed HSBC Asset Management was among the investors that backed the resolution, stating that it believed it would promote “better management of climate-related issues”.

But the vote opened up a rift between UK-based managers that are following US funds’ increasingly cautious approach to shareholder resolutions, and continental European investors that have stuck with more assertive climate policies.

The vote raises questions around the limits of the shareholder voting process as a tool to curb emissions at oil companies. It comes as rival supermajor ExxonMobil has fought back against a climate-related shareholder proposal with a lawsuit. In January, Exxon took the unusual step of suing Follow This and Arjuna Capital, a Massachusetts-based investment adviser, after they introduced a resolution demanding the company do more to cut greenhouse gas emissions.

The groups have since withdrawn the resolution, and Follow This was dismissed from the legal case on jurisdictional grounds. But Exxon has pressed on with the lawsuit against Arjuna Capital, with chief executive Darren Woods vowing at annual meetings on Wednesday to be a “forceful advocate” for shareholder rights, fending off what he called “serial attacks” by activists on the oil industry.

A majority of shareholders at Shell’s annual meeting also backed the driller’s decision to weaken its climate targets, with 78 per cent voting for a revised energy transition strategy that cuts emissions more slowly than Shell had originally planned. LGIM and Schroders both voted against the strategy.

Mark van Baal, founder of Follow This, told me that the resolution asking Shell to cut emissions was aimed at testing shareholders’ commitment to the Paris agreement, in which nations agreed to pursue efforts to limit global warming to 1.5C.

“We’ve filed resolutions for years and years . . . we don’t need to prove that oil majors don’t want to change,” he said. “You only need one resolution to show which investors are committed to Paris, and which investors are not.”

Follow This decided to home in on Shell because appetite among shareholders to oppose its climate strategy appeared to be higher, van Baal said.

“We heard from investors, ‘Maybe BP has a better strategy than Shell.’ Which I completely disagree with, because they’re as far from Paris-aligned as Shell is; only, their CEO is a better salesman,” he added.

LGIM, Schroders and Abrdn, which are all members of investor coalition Climate Action 100+, each argued that the climate resolution at Shell could have unintended consequences, and stressed the uncertain pace of the energy transition as a reason for withholding more aggressive action.

“The wording of the proposal imposes inflexibility on a company that is subject to the non-linear demands of the energy transition,” LGIM wrote in a statement explaining its vote.

“We appreciate that the lack of visibility on the pace of the energy transition and, in turn, the demand for oil and gas creates certain challenges for Shell in setting forward-looking targets,” Abrdn told me in an emailed statement on its decision.

Critics point out that there is something nonsensical about shareholders arguing that oil companies are subject to an uncertain pathway for the energy transition. After all, van Baal argued, “they are the ones who make the pathway”.

Plus, Shell itself says in its climate target that its net zero goal supports the Paris agreement.

But others argue that it makes little sense for activists to try to pin for-profit companies to a 1.5C warming scenario which remains, after all, an aspiration, not a forecast. Why would oil companies make investment decisions based on that hypothetical, they ask, rather than based on the pathway the world appears to be on, with its persistent use of fossil fuels?

“A 1.5C scenario is not a realistic litmus test for climate purity, in a world that is headed for more than 3C of warming,” Nolan Lindquist, head of the think-tank Center for Active Stewardship, told me. “Shell does represent that its long-term net zero goal is ‘Paris aligned’. I don’t know — Paris alignment is in the eye of the beholder.”

Smart read

Rachel Millard and Sarah White reveal that Canadian infrastructure group Brookfield and partner Temasek, the Singapore investment fund, are in exclusive talks to take over Neoen, in the latest potential takeover of a renewable energy company this year.