European investors, predominantly from the Netherlands, find themselves increasingly exasperated as several Anglo-Saxon asset managers prioritise financial returns over the critical energy transition within oil and gas companies. This growing trend became starkly evident during recent shareholder meetings held by energy giants BP in late April and Shell in late May.
While there was a modest uptick from 15 to 17 percent in support for a climate resolution proposed by activist investor group Follow This at BP, aimed at aligning Scope 3 emissions with the Paris Climate Agreement, the percentage of investors urging Shell to endorse the Paris climate goals remained stagnant at 20 percent.
In years past, these figures had shown a steady upward trajectory. Follow This had managed to garner support from 30 percent of investors at Shell and nearly 21 percent at BP in 2021. However, the recent shift in stance by North American asset managers, spurred by political attacks and mounting criticism of perceived «woke capitalism» and Environmental, Social, and Governance (ESG) principles, is beginning to leave its mark.
Notably, BlackRock, a prominent US asset manager wielding significant influence with its ownership of six to ten percent of shares in both BP and Shell, voted in favor of Follow This’s resolution at BP last year but has since reversed its position, voting against the same resolution despite minimal changes in its content.
The ramifications of this decision by BlackRock, coupled with similar shifts from other North American asset managers, reverberate throughout the energy sector. European investors, who had hoped for sustained momentum in support of climate-focused initiatives, now face an uphill battle as the primacy of financial interests takes precedence. As the energy transition gains prominence on the global stage, tensions between financial returns and environmental imperatives continue to shape the trajectory of major oil and gas companies.
Preference for yield
Jesper Vaarwerk, representing Follow This, voices apprehension regarding the myopic approach adopted by several major Anglo-Saxon asset managers. BlackRock, alongside UK firms Schroders and L&G, refrained from supporting Follow This’s resolutions this year, despite their prior endorsement. While the official rationale cited is a reluctance to impose emissions targets on management, behind the scenes, a key factor appears to be their preference for financial returns in the wake of soaring oil and gas prices.
Both Shell and BP acknowledge the mounting pressure from investors in recent months, emphasising the need to prioritise returns over the energy transition. BP asserts that shareholders exhibited minimal interest in voting on CO2 emissions, choosing instead to focus on the group’s profitability.
In the aftermath of the tumultuous Shell shareholder meeting, Adam Matthews, responsible investment officer at the Church of England pension fund, took to LinkedIn to highlight how asset managers have actively encouraged oil and gas companies to prioritise short-term profits in multiple engagements. Matthews laments the divergence between asset managers› interpretations of their pension fund clients› interests and the long-term objectives of pension funds. He played a pivotal role in collective engagement initiatives such as Climate Action 100+, the Transition Pathway Initiative, and the Institutional Investors Group on Climate Change.
Mixed reactions within Climate Action 100+
While the Follow This resolution at Shell garnered support from PGGM and MN, engaging with the oil and gas giant on behalf of Climate Action 100+, the fact that not all members of this influential group of institutional investors endorsed the resolution has caused dissatisfaction within pension investor MN.
Xander Urbach, responsible investment specialist at MN, expressed frustration, stating that it becomes disheartening when they engage with a company to uphold Climate Action 100+ targets, only to learn that other members are conveying conflicting messages. MN declined to provide further comments to Investment Officer, clarifying that it does not actively seek media coverage to criticise Climate Action 100+.
Nine out of the ten largest Dutch investors, who are also signatories of Climate Action 100+, proactively supported the Follow This resolution ahead of Shell’s meeting. An Achmea spokesperson expressed concern over the actions of certain Climate Action 100+ signatories, remarking on the disparity between their words and actions.
Michiel van Esch, senior manager of active ownership at Robeco, acknowledged that strong support from major parties for shareholder resolutions exerts additional pressure and clarity on companies, but also stressed that the absence of endorsement does not necessarily indicate a lack of behind-the-scenes feedback and pressure.
Divergent investment horizons
Lars Dijkstra, Chief Sustainability Officer at Van Lanschot Kempen, observes a difference in investment horizons between Dutch and Anglo-Saxon investors regarding oil and gas companies. However, he underscores the impact of collective engagement in recent years, acknowledging that shareholder meetings often witness divergent outcomes.
While the 20 percent support for the Follow This resolution at Shell may seem modest, Dijkstra views it as an indelible signal that the company cannot ignore, especially considering the global context. He anticipates that over time, the risk-return tradeoff between renewables and fossil fuels will only move in one direction. Looking ahead, Dijkstra finds it difficult to envision a scenario where the percentage of supporters remains at 20 percent five years from now.
This article originally appeared in Dutch on Investmentofficer.nl.