'Unprecedented': Why BP investors holding billions in shares are backing a climate resolution

'Unprecedented': Why BP investors holding billions in shares are backing a climate resolution

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Leading BP investors holding the equivalent of around $12.7 billion of shares in the oil giant have co-filed a resolution urging the company to set out a business strategy consistent with the goals of the Paris Agreement, in a move they claim has secured "unprecedented" levels of shareholder backing.

The 58 investors, acting as part of the Climate Action 100+ initiative, own just under 10 percent of BP voting shares between them, which they claim marks the highest proportion of support yet received for a shareholder resolution calling for climate action at a major corporate.

And crucially, following engagement with investors, BP's board has already said it will support the resolution at this year's AGM, which takes place May 21.

A BP spokesman explained that the resolution would "deepen our reporting in this important area and will help investors appraise the company's progress in relation to the dual challenge" of providing affordable and clean energy.

Similar action from Climate Action 100+ investors last year forced rival oil giant Shell to give its backing to a shareholder resolution on climate action, as a result of which it agreed to link its executive pay rewards to performance against its emission reduction targets. Both Shell and BP have been stepping up their investments in low carbon industries in recent years, but continue to face criticism from campaigners that they are failing to take concerted enough action to shift away from fossil fuels.

The BP resolution calls on the oil firm to play its part in containing global average temperature increases to "well below" 2 degrees Celsius, and stresses that the Paris Agreement requires a considerable reduction in demand for fossil fuels, as well as investment to help shift its production.

It also sets out a number of transparency requirements for BP to report on its consistency with the Paris Agreement with regards to: new capital investments; greenhouse gas reduction targets; investment in oil, gas and other energy technologies; estimated carbon intensity of energy products; and links between the firm's targets and executive remuneration.

Steve Waygood, chief responsible investment officer at Aviva Investors — one of the shareholders backing the action — said BP's support for the resolution "demonstrates how the investment industry can collaborate to instigate meaningful change."

"The scientific consensus is crystal clear on the need for far-reaching action by corporates, with the next decade critical in limiting global warming to 1.5 C. Investors have a responsibility to hold companies to account and to ensure they consider their alignment with the Paris Agreement," he said. "We hope that this first, but important, step represents a shift by the oil and gas sector in tackling today's climate emergency head-on."

However, the resolution stops short of requiring BP to set emissions reduction targets covering all of its emissions, including from its Scope 3 greenhouse gas emissions caused by the burning of its oil and gas products, which account for the lion's share of its emissions footprint.

BP also has called on its shareholders to reject a separate shareholder resolution next week tabled by activist investor group Follow This that would force the oil giant to set Scope 3 emissions reduction goals. Follow This argues only emissions goals including Scope 3 emissions can be compliant with the Paris Agreement.

Nevertheless, investors behind the Climate Action+ resolution include some the United Kingdom's largest asset and fund managers — Aviva Investors; HSBC Global AM; Legal & General Investment Management; M&G Investments; Schroders; UBS AM; and Royal London AM — and the action also marks the first time leading investors have opted to initiate a shareholder resolution by co-filing.

Stephanie Pfeifer — member of the global Climate Action 100+ steering committee and CEO of the Institutional Investors Group on Climate Change (IIGCC) — said support for the BP resolution demonstrates how investors are increasingly embracing an active approach to stewardship of assets they manage with regards to climate change.

"The scale of investor support for the BP resolution is truly unprecedented," she said. "It is the first time globally that shareholders holding a 10 percent stake in a major listed company have filed a resolution on climate change. Investors will continue to build on this momentum and expect companies to embrace the opportunity this provides to strengthen their business."

The move signals increasingly tough action from shareholders on major carbon-emitting firms, which comes amid a surge in public concern over climate change amplified by high profile protests and school strikes in recent months. Recent surveys have shown levels of concern about climate change are higher than ever in both the United Kingdom as well as the United States.  

And there are signs shareholder climate action isn't just taking aim at fossil fuel producers, it seems, but also major users. At their AGM's this year, auto giants Daimler and Volkswagen are also facing calls from Hermes Investment Management, which looks after $42.64 billon of assets worldwide, to align their business strategies with the Paris Agreement goals and take better account of climate risk.

Hermes' Equity Ownership Services' (EOS), also a member of Climate Action 100+, today outlined its voting recommendations for both AGMs, explaining that it would raise questions at the meetings about both companies' climate change strategies. VW's AGM is taking place today, ahead of Daimler's next week.

Both companies have expanded their plans to develop their electric vehicle portfolios in response to future regulatory change and surging consumer demand for battery cars.

But Hans-Christoph Hirt, head of Hermes EOS, said he wanted to see automotive firms intensify their efforts further in preparation for a low carbon world by developing and clearly articulating their strategies for managing their impending transformation.

"This requires setting short, medium, and long term targets to be aligned with the goals of the Paris Agreement, including for average fleet emission reductions, low-carbon vehicle sales and capital expenditure targets," said Hirt. "Investors want to see companies demonstrate the long-term viability of their business models and product offerings so that they are in a position to prosper in a net-zero emissions economy."

All in all, it means two of the world's biggest oil companies, and now two of the world's biggest car companies, are facing unprecedented pressure to provide clarity over their plans to align their businesses with a future, low carbon economy, as the transition away from fossil fuels gathers increasing support.

Which companies might be targeted next?

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