Activist investors file new climate resolutions against major oil firms

What’s happening? Following a loss of momentum in the 2022 proxy season, Dutch climate activist Follow This has again filed proposals at some of the largest oil firms, including BP, Chevron, Exxon and Shell, to encourage them to align their 2030 emissions reduction targets with the goals of the Paris Agreement. (Responsible Investor)

Why does this matter? A survey of 402 private investors by the Association of Investment Companies found that the majority of investors preferred engaging with firms over ESG practices rather than divesting. Despite this, average support for ESG proposals in the US fell from 44.3% in the 2021 proxy season to 33.8% in 2022, according to a report.

Drop in support for climate resolutions – Follow This saw major success in 2021 when its proposals received majority support at the boards of Chevron, ConocoPhillips and Philips 66. However, it didn’t see the same success in 2022 – the last Follow This resolution in May called on Shell to introduce targets that are consistent with the Paris Agreement, but investor support for the resolution was just 20%, a drop from 30% in 2021.

The fall in support for climate resolutions at oil producers may be attributed to some investors finding the proposals too prescriptive. In May 2022, BlackRock said it will not support most climate shareholder resolutions due to many of them becoming too prescriptive on management or not relevant to the pursuit of long-term shareholder value. BlackRock’s support for environmental proposals fell from 31% in 2021 to 20% in 2022.

Similar pattern seen at banks – Support for climate resolutions at banks in 2022 was also low. Shareholder resolutions aimed at preventing Citi, Bank of America and Wells Fargo from investing in new fossil fuel projects received little support, with less than 13% for Citi and less than 11% for the others.

The climate resolutions called on each of the banks to adopt measures to ensure their lending does not contribute to new fossil fuel development. This is a more demanding request than climate activist investors have made in past resolutions, most of which have requested additional disclosures or stronger climate goals rather than specific policies. The tougher approach could be a reason behind the low support these resolutions received.

Investors lag on engagement – The Climate Action 100+ investor alliance has also made little progress – just 10% of firms targeted by the alliance are aligned with the Paris Agreement, according to InfluenceMap data. ShareAction recently assessed the climate engagement reporting of 60 of the largest CA100+ investor signatories and found that 49 investors did not specify any objectives for climate change engagement.

Not just climate – Firms are not just facing pressure to adopt more ambitious climate targets. Some are also facing scrutiny for their labour practices. The activist group SumOfUs has recently called on Apple to release a “phase-out transition plan” to remove any supply chain links to labour from the Uyghur region. Apple is attempting to exclude the proposal through the US Securities and Exchange Commission’s (SEC) “no action” mechanism. However, the SEC’s latest proposals to change shareholder proposal rules may make it harder for Apple to exclude the resolution.

These proposals involve overhauling three rules, including one that allows listed firms to exclude climate and ESG resolutions. Listed companies currently need the SEC’s permission to exclude shareholder proposals under the “no action” process, which outlines 13 reasons why a firm might stop a proposal from going to the ballot. The SEC has proposed amending the wording of the rule to require companies to demonstrate the implementation of “essential elements” of a resolution before vetoing a vote.

Engagement on biodiversity – At the UN’s latest biodiversity summit COP15, a group of institutional investors announced the formation of Nature Action 100, an engagement initiative designed to encourage investors to drive urgent action on nature-related risks and dependencies in the companies they own.

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