Institutional Investors Prepare for AGM Battle with BP
The UK oil giant’s plans to expand fossil fuel production and reduce investments in renewables have sounded alarm bells for shareholders.
BP’s decision to retreat even further on its climate commitments has elicited strong criticism from a group of its institutional investors, which are concerned that the company’s revised strategy isn’t consistent with the Paris Agreement to limit global warming nor in line with its pledge reach net zero by 2050.
At its Capital Markets Day presentation on 26 February, the UK multinational oil and gas company announced its “reset BP” strategy to boost shareholder value, which includes cutting annual investment into low-carbon energy by US$5 billion, to between US$1.5 billion and US$2 billion. It also plans to increase oil and gas investment by 20% to US$10 billion per year through 2027.
The new strategy comes as activist hedge fund Elliott Management has reportedly built a stake in the oil major.
In anticipation of BP backsliding on its commitments to renewables, a group of 48 institutional investors – including Nest Corporation, Phoenix Group and Rathbones Investment Management – sent a letter raising their concerns to BP’s chairman Helge Lund.
The signatories called for the opportunity to vote on another ‘say on climate’ resolution, which allows investors to express their opinion on a company’s climate change strategy, at the 2025 AGM in April.
The previous say on climate vote was held at BP’s 2022 AGM, when 88% of investors then endorsed its decarbonisation strategy, including a target to reduce fossil fuel production by 40% by 2030 (versus 2019 levels). However, in 2023 the company amended the production target to a 25% reduction. Now it plans to increase production to between 2.3 million and 2.5 million barrels of oil per day by 2030.
The recent announcements show a significant shift in BP’s business and climate strategy, according to Valeria Piani, Head of Stewardship at Phoenix Group, a UK-based long-term savings and retirement business.
“While we appreciate the commitment to stronger shareholder returns and capital discipline, we are looking to hold further conversations with the company to understand how the current business model will be resilient in the long term, when climate transition and physical risks will be significantly more material and impact oil and gas demand,” she said.
In collaboration with peers, Phoenix is encouraging BP to present its updated climate strategy for a shareholder vote at its AGM, to “ensure full accountability to investors”.
A short-sighted view
Diandra Soobiah, Director of Responsible Investment and ESG Integration at UK-based workplace pension scheme Nest, labelled BP’s decision to further row back on its investments in renewable energy, while ramping up oil and gas production during a climate crisis, as “short-sighted”.
She also emphasised the long-term sustainability issue. “BP’s belief that increasing oil and gas production will drive long-term shareholder value is misguided – there are clear risks of these high-cost projects failing to deliver promised returns as the energy transition accelerates and demand for oil and gas falls,” she said.
According to Soobiah, Nest is now focused on how it can exert meaningful influence and remain committed to providing a long-term investor perspective to BP. “We will carefully evaluate our options as we approach AGM season,” she added.
Matt Crossman, Stewardship Director at investment management services firm Rathbones Group, is a strong believer that companies should look to engage formally with their shareholders when they materially change their strategy.
“This would be true of any issue as a matter of good corporate governance, but is especially important when the strategy in question goes to the heart of the fundamental prospects of the business,” he said. “BP has always been open about its thinking, but it’s time to make sure the change in strategy is approved by shareholders – in short, the new plan needs to go back to the AGM as soon as possible.”
He added that many of Rathbones’ clients are long-term shareholders of BP, who bought in when the company was positioning itself as a leader in responding to the climate crisis. “Shareholder rights and voice need to be respected,” he said.
Other oil majors
BP is not the only oil giant that is backtracking on energy transition commitments. In December, ExxonMobil set out a five-year plan to boost oil and gas output by 18%, with annual project spending will rise to between US$28 billion and US$33 billion between 2026 and 2030. It also aims to more than triple its production in the Permian, the top US shale field.
Shell reduced its spending on ‘renewables and energy solutions’ by 5% in 2024 compared to the previous year, according to its full year results released in January. Its total spending on oil and gas in 2024 exceeded renewables expenditure by more than seven times.
The US oil major is facing a shareholder resolution asking for more transparency on the plans to expand liquefied natural gas capacity, co-filed by Brunel Pension Partnership, one of the investors that wrote to BP asking for a say on climate vote.
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