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January 26, 2015
Over 50 Institutional Investors Call for Improved Annual Reporting from BP and Shell
    by Robert Kropp

Invigorated shareowner engagement in the UK leads to resolutions requesting that the two companies with the largest carbon footprints in the FTSE 100 report on strategies to address climate change.


In 2009, James Gifford, then the head of the United Nations’ Principles for Responsible Investment (PRI), commented on the traditional differences in shareowner engagement in the UK and US.

"There is a cultural difference between the US and the UK on the issue of filing shareholder resolutions, with this tool being much more common in the US due to weaker shareholder rights leaving shareholders with fewer options, as well as a more confrontational corporate culture," Gifford wrote.

Since then many US-based sustainable investors, especially those associated with the Nations’ Interfaith Center on Corporate Responsibility (ICCR), have in some respects moved closer to the UK model, prioritizing corporate dialogue over the filing of shareowner resolutions. But with the financial risks of stranded assets increasingly considered as part of their fiduciary duty, sustainable investors in the UK are adopting a strategy of filing resolutions.

Two such resolutions were filed recently with BP and Shell by a coalition of institutional investors with a combined $182 billion in assets under management. The Aiming for A coalition, formed in 2012 by CCLA Investment Management, requests that the two companies—which have the largest carbon footprints of the companies listed on the FTSE 100 index—expand their annual reporting to include a number of environmental factors which are likely to increase risk.

Some of the reporting areas requested by shareowners are the following:
• Ongoing operational emissions management;
• asset portfolio resilience to the International Energy Agency’s (IEA’s) scenarios;
• low-carbon energy research and development (R&D) and investment strategies;
• relevant strategic key performance indicators (KPIs) and executive incentives; and
• public policy positions relating to climate change.

“There are several reasons why UK asset owners and mutuals have come together under the ‘Aiming for A’ initiative to support extractives and utilities companies in their preparations for the low-carbon transition,” the resolution filed with BP states. “These range from systemic risk management and our collective fiduciary duty to engage in economic transformation, through to amplifying longer-term investor voices and involving ultimate beneficiaries.”

A press release published by coalition member Church Investors Group stated, “Today’s resolutions reflect the need to balance the short- and longer-term aspects of shareholder value creation and investment risk concerns.”

Among the US-based members of the shareowner coalition are Mercy Investment Services and Christian Brothers Investment Services (CBIS), both of which are ICCR members. In an email, Julie Tanner, Assistant Director of Socially Responsible Investing at CBIS, wrote, “BP and Shell were selected since they have the highest carbon footprints in the FTSE100 and have the potential to play a key role in the multi-decade global energy transition.”

“Both companies are facing higher costs due to such things as increasing operations in physically challenging environments and development of unconventional oil reserves such as deepwater, Arctic, and oil sands, among others,” Tanner continued. “Investors are concerned that climate change can create material risks for investors and shifts in the energy market, including flat or reduced demand, challenges from renewables, and fuel switching from oil to gas can impact profitability. The type of information requested in the resolutions would allow investors to better manage risk and protect shareholder value.”

 

 
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