At BP’s 2015 Annual General Meeting (AGM), 4.12% of the company’s investors either ‘abstained’ (2.4%) or voted ‘against’ (1.72%) a resolution to better disclose carbon risk. The remainder (96%) got the publicity for supporting the resolution, as the board (in a move of alignment with resolution filers) recommended. But as we approach the 2016 voting season, we need to understand why 4% of investors would take the step of either abstaining over this board recommended resolution, or voting against it.
The normal reasons given for not supporting environmental resolutions do not apply. The board endorsed the resolution. The voting advisers recommended voting ‘for’. COP21 in Paris was around the corner. How could any investors think disclosure was neither here nor there, or even a bad thing – especially once the company had said they favour it? Anyway, abstentions and voting against amount to the same thing – both allow the company to claim that investors are not supportive. The bottom line is that because of the way that much voting generally happens in line with management and/or proxy advisors, it would take quite some effort to actively vote contrary to the board recommendation by ‘abstaining’ or voting ‘against’.
Scroll forward to 2016. Effectively the same resolution has been put to Chevron, Exxon and many other US companies. Chevron and Exxon tried to get the SEC to exclude the resolution. The SEC backed the investors. The companies now recommend that investors vote ‘against’. (Interestingly, a similar resolution appears on Canadian company, Suncor’s, ballot along with the board’s endorsement!)
In the USA, there is a much bigger tradition of abstentions and voting against “environmental” resolutions. This can be as much as 10-15% abstentions and usually a majority against. And the biggest US fund managers are systemically important – with assets under management on the same scale as the GDPs of major countries.
So the issue is of much bigger concern.
We also know from data from a CFA Institute poll that investment professionals in general are weakly informed about climate risk and do not have a positive view about stewardship as a strategy. And risk awareness in Canada and USA is particularly weak.
That is why we went back into the voting data on BP to try to understand how particular groups voted. Thankfully in the USA, the SEC mandates public disclosure of this data (and we would welcome other jurisdictions adopting this same commitment to transparency). And that allows groups, such as Ceres, to benchmark investors on their tendency to challenge or vote with management on climate risk issues.
Working with the Fund Votes Project we found that some large asset managers abstained, including Fidelity, Columbia, Gabelli, Prudential and Valic. Federated actually opposed BP’s management by voting against the resolution.
Most AGMs this year take place over the months of April, May and June. Large global asset managers are often slow to change their voting policies and typically lag other types of investors when it comes to voting against management.
Yet, evidence is accumulating that failure to make the transition to a carbon-constrained future puts the global economy – and the portfolios of diversified investors – at risk. Companies that fail to plan for a 2-degree scenario and that fail to explore and disclose the attendant risks could fail – Peabody Energy is a case in point.
So there is some degree of urgency in alerting large institutions to the importance of supporting better disclosure of climate risk.
What is interesting is that the top shareholders of BP/Shell and Exxon/Chevron are largely the same (albeit in different rank orders):
- BP:LGIM, Blackrock, Vanguard, Norges, Kuwait Investment Office
- Chevron: Vanguard, SSGA, Fidelity, Wellington, Blackrock
- ExxonMobil: Vanguard, SSGA, Blackrock, BNY, Wellington, (Norges and LGIM are top-15 holders)
- Shell: Blackrock, Vanguard, Franklin, LGIM, Norges, SSGA
Asset owners and civil society will be watching closely to see whether these and other top investors, who largely supported the BP/Shell resolutions, switch their votes at Chevron, ExxonMobil and others. Important too is the resolution at Southern – the first resolution, anywhere in the world, actually calling for a 2C transition plan. As a major electricity utility, Southern is the third largest US emitter of Green House Gases (GHG) and investors should take this opportunity to encourage the company to align with, rather than resist, the US administration’s Clean Power Plan for utilities that is key for the US to be able to honor its COP21 commitments.
Given that these resolutions call for greater disclosure of risk, we anticipate investors will recognise the protective value, particularly in the North American context. Any change in vote would most plausibly be linked to management’s recommendation, which appears to us to be a weak rationale for allocating support on an issue like this.
Bill Baue, Reporting 3.0
Raj Thamotheram, Preventable Surprises