Railpen exec: ‘The game is up in terms of good faith engagement’

As 2023's AGM season is drawing to a close, many asset owners have started to reflect on this proxy season. 

Firstly, there is the much-talked about meeting of UK pension funds where they plan to reflect on the lack of proxy season success in oil and gas this year.

The aim of the gathering will be to review how asset owners long term interests have been served by their managers when exercising their stewardship and proxy voting at major European oil and gas companies.

Faith Ward, chief responsible investment officer at Brunel Pension Partnership, recently revealed that several members of the UK Asset Owner Roundtable, including Brunel Pension Partnership, Scottish Widows and The Church of England Pension Board, amongst others, "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."

Specifically, UK asset owners are concerned that, despite warnings from the United Nations and the IPCC of the risks of delayed action on climate change, short-term interests are trumping long-term interests of pension funds.

"Delayed action on climate increases the chances of a disorderly climate transition and missing the goals of the Paris Agreement," Ward wrote. 

That view is shared by Michael Marshall, head of sustainable ownership at Railpen, one of the UK's largest and longest established pension funds, representing more than 350,000 members around the country.

"Companies’ climate strategies remain under fire for not going far enough," he stated.

Indeed, many oil & gas companies continue to be singled out for criticism by a mixture of NGOs and investors, with some shareholders publicly criticising oil & gas majors for rolling back on previous climate transition plans. 

Some investors actually put their money where their mouth is: only yesterday the Church of England Pensions Board announced it is offloading its stake in oil giant Shell as the pension giant is looking to end all of its interests in the oil & gas sector.

A lack of progress on addressing climate issues has been the decisive factor for the decision, according to John Ball, chief executive officer of the Church of England Pensions Board.

"It’s now clear that Shell and a number of its peers don’t have sufficient ambition to decarbonize in line with the aims of the Paris Agreement,” Ball wrote in an email earlier today.

Shell confirmed recently that it plans to increase its investments in oil & gas. The company assured shareholders it can still meet its target to eliminate emissions by 2050, although the multinational failed to explain how.

"While some investors have argued that the game is up in terms of good faith engagement with fossil fuel suppliers, and that a more effective way to decarbonise the energy system would be to focus on the demand for hydrocarbons instead, we can measure the level of investor patience via the relative success of high-profile resolutions," Marshall said.

He singled out the resolutions filed by NGO ‘Follow This’ at Shell and BP, which attracted around 20% support at Shell and around 17% at BP, suggesting support for the NGO-backed transition plans remains around the same level it was last year.

Ball addressed this issue too. “Recent reversals of previous commitments, most notably by BP and Shell, has undermined confidence in the sector’s ability to transition," he said yesterday.

Financial institutions are also under the climate spotlight.

As You Sow’s resolution at Goldman Sachs, which asked the company for a credible transition plan with 2030 targets, was supported by 30% of shareholders.

Interestingly, Marshall said CEO pay has become "a divisive issue."

"So-called ‘Say-on-pay’ votes on companies’ executive remuneration packages continue to see significant levels of dissent," he noted, pointing out that "executive pay is a particularly emotive issue during a period of high inflation where wages for lower paid workers have generally failed to match increases in the cost of living, all the while CEO pay packages are typically valued in the millions (sometimes tens of millions) and have continued to increase in size over time."

"Shareholders should be looking for fair executive pay policies that incentivise long-term value creation, focusing on both the total pay level but also a transparent structure that clearly aligns with shareholders’ interests," Marshall concluded.

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