Managers Missing Voting Opportunities on Oil and Gas
Activist groups flag failure to hold polluters accountable for contributions to climate change in 2024 AGM season.
Asset managers’ softening stance on climate stewardship at fossil fuel firms is stalling the global transition to net zero, with asset owners urged to step up their scrutiny and expectations.
Activist group Make My Money Matter (MMMM) has launched a campaign to raise awareness, calling out UK-based asset managers Legal and General Investment Management (LGIM) and Aviva Investors’ voting records at oil and gas major. This proxy season, the two firms voted with management at Shell and BP 44 out of 45 times.
“Aviva and LGIM are two of the biggest asset managers in the UK,” Huw Davies, Senior Finance Adviser at MMMM, told ESG Investor. “But the questions we are posing to them could also be asked of any asset manager or asset owner. Stewardship of companies that lack serious 1.5°C-aligned transition plans is simply not strong enough.”
Davies questioned the rationale behind voting against Shell’s energy transition strategy – citing its lack of alignment with the goals of the Paris Agreement – but then supporting every other resolution at this year’s AGM, including chair and director appointments.
“There’s just no logic to voting against the decarbonisation strategy of an energy company and then voting in support of the board overseeing that strategy,” he said.
MMMM has called on asset owners and asset managers to vote against chair and director re-elections and withhold approval of remuneration, accounts, auditors and transition plans at all oil and gas companies that are not aligned with net zero.
“If an investor is voting in favour of an oil and gas firm’s board of directors, then that suggests they think the company is well run – which is at odds with their alleged position on climate,” said Danielle Fugere, President and Chief Counsel at US shareholder advocacy group As You Sow.
She acknowledged that asset managers are in a “particularly difficult position” as they look to balance different clients’ requirements.
A 2023 report by Reclaim Finance highlighted that the 30 largest European and US asset managers on average supported 78% of director re-elections and 70% of remuneration deals for fossil fuel developers last year.
“We have found that a whole-economy approach, balancing both the demand for energy and the supply of energy can provide superior outcomes for our customers’ financial returns as well as delivering a sustainable outcome,” an Aviva Investors spokesperson said.
A LGIM spokesperson said it engages actively and constructively with companies on the transition to a low carbon, net zero economy.
Both managers reiterated their commitment to addressing climate change through their stewardship activities.
“There’s a valid argument that we will need fossil fuels for years to come, but we also need to be supporting the production of clean energy,” said Davies. “We urgently need to see much stronger stewardship from asset owners and their asset managers who invest in oil and gas expansions.”
Perpetuating demand
Investors must take account of business strategies by oil and gas companies which seek to expand rather than simply meet demand, said Davies. “They are perpetuating that demand through their actions, their narrative and their strategy.”
Last week, Exxon published its Global Energy Outlook, forecasting that global crude oil demand will remain robust, exceeding 100 million barrels per day through to 2050. It has also argued that if every new car sold by 2035 is electric, global oil demand would still reach 85 million barrels per day – contradicting the International Energy Agency’s net zero pathway projections.
The company aims to produce 4.3 million barrels of oil and gas a day this year – 30% more than rival Chevron’s current output.
Earlier this year, Exxon pursued legal action against climate-focused shareholders. Despite this, Exxon’s directors received 87-98% support for re-election from shareholders – only a slight decrease from the 91-99% range the year before.
“[Exxon has] nailed its colours to the mast – its interest is short-term profit at the expense of the future,” said Agathe Masson, Stewardship Campaigner at Reclaim Finance.
While BP and Shell may arguably have a better track record than their US peers, in terms of the need to adjust to reduced demand, Davies said this should be no excuse for investors to “let them off the hook”. BP has cut its oil and gas production reduction target from 40% to 25% by 2030 and Shell dropped its goal to cut oil production by the same deadline.
Practice what you preach
Thousands of institutional investors globally remain heavily invested in fossil fuel companies, despite their Paris-aligned commitments.
A study earlier this year found that more than 7,000 institutional investors collectively held US$4.3 trillion in bonds and shares of fossil fuel companies, as of May 2024. US asset manager Vanguard – which did not support any environmental shareholder resolutions this year – has holdings amounting to US$413 billion.
“The world’s largest asset managers need to revisit their standard approach to proxy voting,” said Jessye Waxman, Senior Strategist for Sierra Club’s Fossil-Free Finance campaign. “Their current strategies mostly do not support the long-term interests of diversified and passively invested clients.”
Asset managers’ engagements need to shift from increasing climate-focused disclosures and ensuring board oversight to addressing outcomes, such as whether companies are actually working on aligning their strategies with the goals of the Paris Agreement, she said.
Investor-led collaborative initiative Climate Action 100+ has suffered a number of big-name withdrawals after it unveiled an engagement strategy more directly focused on scrutiny of the transition plans of carbon-intensive firms.
In addition, asset managers should be challenging fossil fuel companies on the level of capital expenditure being spent on transition efforts – withholding new investment from oil and gas firms choosing to pursue fossil fuel expansion.
“Asset owners need to set out clear red lines on fossil fuel expansion, as well as deforestation and other critical climate-nature issues,” said MMMM’s Davies.
A lack of ambitious targets by asset managers and any backsliding on climate commitments undermines the credibility of shareholder engagement, Masson added.
“Investors could be accused of not trying hard enough, not using the right method, or not genuinely wanting the transition,” she noted. “To avoid these accusations, investors need to escalate their action when no progress is observed, and they should sanction backpedalling.”
As an example of credible investor engagement and escalation, Masson pointed to a letter coordinated by Ofi Invest Asset Management and signed by 16 investors in May, addressed to six European oil and gas companies – including Shell and BP.
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