What to expect from Shell’s AGM this week – comment from Lindsey Stewart, Morningstar

by | May 22, 2023

Lindsey Stewart, Director of Investment Stewardship Research at MorningStar comments on what to expect from Shell’s AGM taking place on Tuesday. The comments can be seen below:

“There has been a shift in emphasis on climate action at energy companies this proxy season, with filers of shareholder proposals focusing on the impact of indirect “Scope 3” emissions—greenhouse gas emissions attributable to company through the products and services it buys and sells.

So, in the finance sector, we have seen several resolutions focusing on curtailing bank financing and insurance underwriting of new fossil fuel assets. Meanwhile in the energy sector, we are seeing several resolutions, like the one filed at Shell, requesting more ambitious Scope 3 emission reductions.

A similar resolution at BP last month received just under 17% support – sizeable, but less than the 20% support that would usually trigger a formal board response (Similar resolutions have also been filed at Chevron, ExxonMobil and TotalEnergies – all being submitted to a vote before the end of the month). Given the similarities, it would be very surprising for a number of reasons if the shareholder proposal at Shell gained considerably stronger support than the one at BP.

We are in an era where large asset managers, particularly U.S.-based ones, are reticent to be seen dictating strategy to management. It can be argued that these resolutions on Scope 3 do exactly that. BlackRock CEO Larry Fink captured that sentiment in his latest shareholder letter, stating: “As minority shareholders, it’s not our place to be telling companies what to do.”

It is telling that even some of the large asset managers with reasonably high sustainability ambitions, like LGIM, Schroders, and AllianzGI, chose to vote against the proposal at BP, judging the request to be either too inflexible or best handled via engagement with management for the time being. It is hard to see a reason why they would view the proposal at Shell differently.

The bottom line is that, although asset managers remain keen to receive meaningful disclosures on climate strategy and governance, they do not wish to be seen to set that strategy themselves.

However, shareholder resolutions are not the whole story when it comes to holding companies accountable for climate progress. Many asset managers and asset owners have emphasised that they will vote against elections of directors they perceive to be responsible for persistent shortcomings on climate strategy execution. Several UK pension funds, have been active in this regard. Last month, we saw Nest, USS, Brunel Pension Partnership and LGPS Central vote against the chair of BP in a protest vote to express dissatisfaction over the company’s handling of its climate strategy update.

Similarly, the Church Commissioners, who run the Church of England’s endowment fund have decided to vote against all directors at Shell – as well as ExxonMobil, Total and other businesses – due to their dissatisfaction with those companies’ climate performance. In a similar move last year, U.S. asset owner CalPERS voted against four directors at Chevron.

So, even if the latest, highly specific shareholder resolutions on climate are not as well supported, investors are certainly still seeking to hold companies accountable for climate performance in a variety of ways.”

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