Investors are concerned about the lack of consultation from BP following the oil major’s decision to scale back its medium-term emission reduction targets, Iancu Daramus, responsible investment associate at Fulcrum Asset Management, told Responsible Investor.
The London-based manager formally became a co-lead investor on BP as part of Climate Action 100+ last year, joining the efforts of fellow lead engagers EOS, the stewardship arm of Federated Hermes and Legal & General Investment Management (LGIM). Prior to joining Fulcrum in 2021, Daramus was a senior sustainability analyst at LGIM.
Earlier this month, BP revealed that it was cutting its 2030 emissions reduction goal for oil and gas production from 35-40 percent compared with a 2019 baseline to 20-30 percent, after posting record-breaking profits.
The rollback was prompted by the UK oil major’s decision to increase investment in oil and gas projects to the tune of $1 billion per year up to 2030.
It came less than a year after shareholders endorsed the firm’s climate plan, via a so-called Say on Climate vote, with 88 percent support.
“I do think there is concern within the investor community around exactly the lack of consultation,” Daramus said.
While he acknowledged that there were limits as to what could have been shared in advance due to the announcement containing sensitive, potentially market-moving information, Daramus said he believed that “there was probably a lack of indication of potential changes”.
This raises questions around the governance of the decision, he said.
“I think the signal from the company over the last year or so, including at the AGM and before was, ‘no changes, the strategy is set, we’re executing now,’ so there is a concern around management thinking about what precisely led to those changes.”
But Daramus stressed that it was important to put BP and its transition plans into context.
“Ignore the revisions for a moment, just look at the headline numbers, I think we’re still within, high-level, the range compatible with for example the IPCC’s 1.5 degrees scenarios,” he said. “I think if a US oil major were to have come with similar targets, I think they would be celebrated, not chastised for it.”
That said, however, he added that it does matter that what BP has done can be seen “to a degree as a rollback.”
Given the war against Ukraine, Daramus acknowledged that we are not in the same world as when BP’s targets were set. But he said that when the long view is taken, even BP’s own outlook is bearish when it comes to oil demand.
“Potential revisions to those targets are at least seemingly in tension with some of the indication coming both from the company and from other industry observers.”
Daramus told RI that Fulcrum now wants to better understand what led to those decisions from BP’s management.
Sets a ‘bad precedent’
BP’s decision to cut its medium-term targets shows that advisory Say on Climate votes can be “disregarded at any time”, Colin Baines, stewardship manager at UK pension pool Border to Coast, told RI recently.
When asked if he thought the move by BP undermined such votes, Daramus said that it does set “a bad precedent, there’s no question around that.”
Baines also suggested that it was perhaps time that investors should “be looking at binding independent resolutions to tie in science-aligned low-carbon transition plans”.
On binding climate votes, Daramus cautioned against a one-sized fits all approach. For instance, he said, binding Say on Climate votes might push companies to lower their ambitions, creating an unintended consequence of nudging firms to be “as cautious as possible rather than stay in the slightly more aspirational space.”
It is also an open question whether a binding vote would run contrary to the first principles of corporate governance, namely, that investors appoint the board, and the board sets the strategy, Daramus said.
Short-term signals vs long-term outlook
As to what might have driven BP’s decision, Daramus stated that while he cannot comment on what a particular company is thinking, there has been a “slight” change in rhetoric around fossil fuels. He pointed to US President Joe Biden calling on oil and gas companies to invest in greater as a “patriotism” and to Germany’s new LNG terminals.
“I think the risk lies in misreading sort of shorter-term signals for the longer-term outlook,” he said.
“Is there is a risk that the industry sort of opportunistically uses this to say, ‘all this climate conversation is on pause, now is the time’?”
Daramus said that he thinks there’s an element of that rhetoric happening in the industry. “That’s precisely one of the objectives for our engagement, to say, but the longer-term signal is more bearish than before the invasion of Ukraine, for example.”
Daramus also stressed that it is important to not become too focused on a particular company or sector and to build a systematic approach to stewardship, one based on principles. “For instance, if you’re a company and you don’t have any emissions targets, regardless of sector, that invites a vote against.”
BP has not responded for a request for comment at the time of writing.