Adam Matthews: ‘There is a limit to what you can achieve’ with oil and gas engagement

As chief responsible investment officer at the Church of England Pensions Board since 2018, and chair of the Transition Pathway Initiative (TPI) since 2017, Adam Matthews has been regarded as a leader in the charge of institutional engagement with oil and gas firms.

In July of last year, the Institutional Investors Group on Climate Change in collaboration with the TPI, published an investor-backed framework of indicators to analyse 27 large banks on their shift to net zero.

Matthews has also acted as co-lead engager with Shell at the Climate Action 100+ (CA100+) initiative, and previously welcomed decisions such as the oil and gas major withdrawing from the Cambo oilfield project in the UK in December 2021.

However, the most recent AGM season showed serious setbacks for those wishing to hold the oil and gas majors to account for their carbon intensive activities. 

Earlier this year BP negatively revised its net zero timeline in the face of massive profits and reversed pledges made in its ‘Say on Climate’ that was put to shareholders in 2022. Yet at its AGM, the revisions were not put to a vote and a Follow This resolution on Scope 3 emissions reductions received just 17% of votes in favour.

Another Follow This climate resolution was put forward at the most recent Shell AGM. Despite being back by institutional investors including the CofE Pensions Board, it only received 20.3% support.

By Matthews own admission, the approach institutional investors are taking towards oil and gas firms needs to change when climate resolutions have flatlined at such low levels of support. 

Speaking exclusively to Net Zero Investor, he said: “I feel we've hit a really important crossroads in stewardship of the oil and gas sector that we have engaged robustly with over the past eight to ten years.

“We've seen a lot of progress, particularly from a European oil and gas majors, but now, we've started to see a reversal. This really presents a major challenge, particularly for pension funds, particularly for institutional investors, who are very much looking to navigate over the longer term.”

According to Matthews, the “short term” approach shown by oil and gas majors in their investments and net zero approach is at contrast to the goals of institutional investors who operate with a much larger time horizon at the forefront of their considerations.

Next month may well prove if the CofE investment board will be taking firm action on top of Matthews’ firm words. After five years of “intense engagement” according to Matthews, findings will be presented to the General Synod next month, and the decision shall be made on whether the Pensions Board will outright divest from Shell.

Asset Owner v. Asset Manager

In May, Faith Ward, chief responsible investment officer at the Brunel Pension Partnership, revealed that several members of the UK Asset Owner Roundtable, including Brunel and the CofE Pension Board, "are concerned at a perceived misalignment between our long-term interests and how investment managers are exercising proxy voting at key annual general meetings of European oil and gas majors", and are arranging a meeting with major fund managers to arrange next steps.

Matthews himself is all too aware of the growing disconnect between asset owner and asset manager. As the anti-ESG movement gains ground in the US the Big Four appear to be getting more cautious in their voting habits when it comes to climate, even as European pension funds flirt with or outright embrace divestment from oil and gas majors.

Of the rift between asset owner and asset manager, Matthews said: “Amongst asset owners, there is an interest in seeing a more robust exercising of stewardship and an understanding from fund managers why they voted the way they have this year, how they steward between AGMs.

“Greater understanding across the asset owner and fund manager communities is going to be critical in how we move forward to next year. You'll see a much greater focus on investor engagement with the demand side but also on lobbying, as ultimately enabling a policy environment for the transition is critical.”

Matthews is also clear that while the actions of Faith Ward and the Asset Owner Roundtable applies to UK institutional investors, he is hearing similar sentiments about the need to better align the asset owner and manager relationship more widely at pension funds across Europe.

Climate Action 100+

Recently, Matthews stated his belief that the attentions of the Climate Action 100+ may need to shift from the heaviest emitters in the oil and gas industry, moving to downstream emitters who may be more responsive to engagement.

“I'm very clear the CA100+ has been an unequivocal success. But does it still need to achieve more? Absolutely. And does it need to do more in the next phase? Yes. But it needs to change its tactics as well.

Having a focus on the demand side, and understanding how quickly individual companies or sectors can accept oil and gas dependencies, and how quickly they can move to alternate energy sources, I think should be a key priority.”

While the CA100+ has undoubtedly scored key victories in its time, such as 92% of focus companies now having some level of executive oversight, and 75% of companies committing to net zero by 2050, there have also been failures to successfully engage in the oil and gas sector. 

Focus company Saudi Aramco is yet to achieve a single one of the organisation’s ten climate targets, and according to NGO Client Earth the state owned enterprise is directly responsible for 4% of the entire world's greenhouse gas emissions since 1965.

The shift away from oil and gas engagement may already be happening. Through the 2023 AGM season, there have been climate resolutions filed at downstream companies as diverse as Kraft Heinz, Amazon, Netflix and restaurant chain Texas Roadhouse.

“Investors clearly are going to continue to engage in line with their legal duties and responsibilities. I'm confident that the CA100+ will continue to play an important role, but I do think the strategy in terms of what we prioritize, that focus will shift.

“It has to because there's a finite amount of stewardship capacity and deploying that in a sector such as oil and gas that's not ultimately going to move further I think would be a waste of that limited resource," Matthews concluded.