Aussie super fund queries ISS’s position on Woodside directors

Vision Super’s CIO tells RI that it ‘makes no sense’ for ISS to ‘pursue different strategies in its sustainable and main advice’ at the Aussie oil giant.

The decision by Institutional Shareholder Services (ISS) to back the directors at Woodside Energy in its main advice but oppose three on climate grounds in its dedicated sustainability offering has been questioned by the CIO of Australian super fund Vision Super. 

“Either a resolution is appropriate for support, or it isn’t,” Michael Wyrsch told Responsible Investor. “There may be some arguments about the best way to get Woodside back on track, but it makes no sense to pursue different strategies for the sustainable and main advice.”  

On Thursday, AFR reported that ISS was recommending votes against the re-election of three directors responsible for climate risk oversight – including former Australian resources minister Ian Macfarlane – in its sustainability advice on the grounds that the oil and gas giant “is not aligned with investor expectations on net zero by 2050 targets and commitments”. 

The influential proxy adviser also recommended support for a shareholder proposal calling for disclosure on how Woodside’s capital allocation aligns with a 2050 net-zero scenario.  

But in its main benchmark advice, ISS gives its “qualified” support for the three Woodside directors and opposes the climate proposal.  

“The qualification is raised to highlight concerns for the board’s responsiveness to shareholders in connection with the 2021 climate report and climate-related matters,” ISS said.  

Rival proxy firm Glass Lewis is recommending a vote against Macfarlane on climate grounds in its advice.

Last year, Woodside – then called Woodside Petroleum – suffered the largest opposition to a Say on Climate vote, when 49 percent of investors rejected the firm’s climate plan. ISS backed that plan in its 2022 main advice, whereas Glass Lewis opposed it.   

Woodside’s failure to respond to concerns around its climate governance prompted Aussie non-profit the Australasian Centre for Corporate Responsibility (ACCR) to team up with Vision Super and Australian ETF provider Betashares to file a members’ statement last month calling for directors to be held to account.  

The trio opposed former Shell Singapore chairwoman Swee Chen Goh and former ConocoPhillips senior executive Larry Archibald, as well as Macfarlane.  

Woodside refused to include the statement from the group in its notice of annual general meeting, arguing that it did not meet the requirements under Australia’s Corporation Act.  

Glass Lewis has recommended a vote against Macfarlane alone this year on the grounds that “protesting the re-election of all three incumbent directors would result in substantial disruption to the board”. It has also opposed the climate shareholder proposal.

Vision Super’s Wyrsch described the Glass Lewis recommendation as “significant”. “This is the first time in memory that climate governance concerns have been the rationale for recommending against a director in Australia,” he said.  

He noted that Woodside is now indicating that it plans to offer shareholders a non-binding vote on their climate strategy next year and every three years thereafter – but added that the firm has already demonstrated how much it listens when it comes to advisory votes.

“It’s time for an escalation from shareholders to demonstrate this isn’t a marginal green issue – it relates to core company strategy and governance,” he said.  

Wyrsch pointed to Kodak and Xerox as examples of companies that failed due to a “lack of strategic vision and the courage to change”.

“When your board is dominated by directors with oil and gas experience, chances are the solution is going to be oil and gas no matter what the problem is,” he said. “Woodside itself has expressed that they’re determined to cut Scope 1 and 2 emissions – but apparently have failed to make the connection that their clients are looking to do likewise.”  

The recommendations by the big proxy advisers will likely influence shareholder voting ahead of Woodside’s AGM on 28 April and raise the prospect of a revolt similar to that seen at AGL in November, which resulted in four “climate competent” directors being elected at the Aussie energy giant – a first in the country.   

ISS does not provide additional company-meeting specific commentary, but a spokesperson directed RI to a statement on its different voting recommendations.

“ISS is not a standard-setter, nor are institutional investors monolithic in their views, and so we offer clients a wide array of voting policy choices to include their own custom guidelines alongside ISS’s benchmark and specialty policies.”