Two of the UK’s largest pension schemes, which together oversee £130bn in assets, will vote against the renewal of top directors at BP and Shell at their annual meetings unless both companies improve their commitments to tackling carbon emissions.
The plan by the UK universities’ pension scheme and Borders to Coast, which invests the retirement pot of 1mn local authority workers, was part of efforts to push oil companies and banks to make faster progress on climate change pledges, executives told the Financial Times.
“Taking a more personal approach to voting is more likely to drive change,” said David Russell, USS head of responsible investment.
Colin Baines, stewardship manager at Borders to Coast, added that voting against management was “one of the most influential means of swaying company behaviour available to investors”.
BP and Shell have committed to achieve net zero carbon emissions by 2050. But they have drawn criticism from environmentalists and some shareholders for not overhauling their businesses more quickly.
Those concerns have been exacerbated by BP’s decision to pare back its commitment to cutting oil and gas output by 2030 as well as comments from Shell’s newly appointed chief executive that the group might produce more oil for longer.
Pointing to increased concerns about energy security created by Russia’s war in Ukraine, BP’s Bernard Looney has said the group’s oil and gas output would fall only 25 per cent by 2030, compared with 2019 levels, down from a previous target of a 40 per cent.
Shell’s Wael Sawan is reviewing a previous commitment to allow oil output to fall between 1 and 2 per cent a year.
The £91bn Universities Superannuation Scheme, one of the largest pension schemes in the UK, said comments made by BP and Shell could indicate “a possible weakening of previous positions on climate change”, which would be factored into USS votes at annual shareholder meetings scheduled for May.
USS also intends to vote against directors at oil companies that do not provide a breakdown of spending on projects that add to their carbon footprint and any banks that fail to disclose their climate transition plans.
The £38.3bn Borders to Coast also warned that it was prepared to vote against the reappointment of Shell chair Andrew Mackenzie and BP chair Helge Lund. Chairs at Total, Petrobas and Eni also face the prospect of a negative vote under a revamped stewardship policy.
Under the new policy, the pension scheme will vote against the chairs of oil companies that fail to set out short, medium and long-term emission reduction targets, as well as those failing to integrate climate risks into their business strategy and capital expenditure decisions.
Simon Rawson, director of corporate engagement at ShareAction, a charity promoting responsible investment, said it was “not surprising” to see disappointment among some investors at BP’s decision to backtrack on its output reduction target.
Ethics for USS, a coalition of academics that campaigns for the pension scheme to take action in response to climate risks, welcomed the decision.
“USS also needs to stop funding all new fossil fuel developments and to divest immediately from fossil fuel companies that are not rapidly cutting emissions,” said Paul Kinnersley, a member of Ethics for USS.
Institutional investors have historically been reluctant to target individual directors, fearing this could make potential board recruits more reluctant to take up positions. But this is changing with asset managers including BlackRock and Fidelity International increasingly targeting board members over a lack of progress on climate change.
In December, Railpen, which manages £35bn for British railway workers, said it would vote against the chairs of companies that were failing to provide a credible response to climate change.