Win for Big Oil and a Win for the Environment

February 20, 2015 Categories: Governance & Regulation, Investment Strategy


The other day, surprising many, Shell encouraged shareholders to support a shareholder resolution.

The resolution is being put to Shell’s AGM in May. It seeks greater disclosure by Shell of the risks to its business model posed by climate change. Often, shareholder resolutions are viewed by companies with suspicion, even outright resistance. But not this one. Shell is supporting the provision of more extensive reporting of its operational emissions management, low carbon energy R&D, strategic KPIs including executive incentives, and its public policy interventions. A few days later, facing a similar resolution, BP took the same position. These resolutions were the result of a collective engagement by a significant body of investors. Some commentators have called this a victory for investors, but that stance might be unwise. If there is a victor, there is usually a loser, and it is unhelpful for these companies to be seen as losers. It is much better to see this as a positive outcome for both parties, and for other stakeholders too, as a result of collaborative shareholder engagement.

We Believe there will be more such engagements. The debate around stranded assets is gathering momentum, and the business models of fossil fuel extractive companies are at the heart of that debate. Investors have access to a flourishing body of research which indicates that Business As Usual for many such companies is no longer tenable. Capex is under scrutiny. Should investors hedge, disinvest, engage or head for renewable energy? Like most good questions, there is no simple answer. But increasingly that issue needs to be addressed, and the engagement route is attractive to some. It is important for participants in this debate not to polarise around the extreme positions of pro-environment or pro-business. We need to be pro-both! My colleague Bob Collie has recently written about this, drawing on insights from psychology around “belief overkill”.

What next? We can map out some of the future terrain, though not discern the outcomes. We believe there will be more investor engagements, for sure. The Montreal Carbon Pledge is gathering asset owner signatories, worldwide. COP21, the UN Climate Change Conference to be held at the end of the year in Paris, is a pivotal governmental event. It has the capacity to surprise on the upside, given the low expectations of the outcome. And if those low expectations are realised, lack of progress in Paris may mean global efforts to constrain carbon emissions fall away. National and regional efforts would grow in importance. Meantime, China is trading carbon emissions in seven provinces and cities. The Shell and BP shareholder resolutions point to the long, and interesting, path ahead.

Mike Clark – Director, Responsible Investment

Russell Investments Wire - Mike Clark

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