In a week’s time at Royal Dutch Shell’s AGM, the world at large, and the millions of people who rely on institutional investors to act in their best interests, will learn something important about the investment community. The catalyst for this lesson on institutional investors is Resolution 19, a climate-focused shareholder resolution filed last December by over 3000 retail investors in Shell, who are co-ordinated by Follow This, a Dutch NGO. In filing their resolution, Follow This has been described privately by institutional investors in recent weeks as “very unhelpful”. History may turn out to be the better judge of whether their actions at Shell – three years in a row – have helped or hindered their cause.
ShareAction, which is proud to be a co-filer of the Follow This resolution, has worked hard over the last few months to make the case in favour of Resolution 19. As such, I don’t intend in this article to rehearse the arguments we have already made for voting in support. Suffice to explain that the Follow This resolution requests that “Shell set and publish targets that are aligned with the goal of the Paris Climate Agreement to limit global warming to well below 2°C”. Shareholders in Shell will decide by 22nd May to support or reject this simple, powerful proposition. Meanwhile, Shell’s board has formally recommended to its shareholders that they vote against Resolution 19.
A range of reasons have been put forward by institutional investors for why they may follow Shell’s board rather than the 3000+ shareholders who put this resolution on the ballot. Top of their list is that Shell, though it is yet to set and publish such targets, is doing better than other oil and gas companies in acknowledging the relevance of climate change for its business model. Shell is indeed ahead today, compared to its peers. A large part of the reason for this – which few institutional investors have had the good grace to acknowledge – is that last year’s Follow This resolution served to apply substantial pressure on both Shell and its major investors to step up on climate change.
A year ago, when Shell’s board also recommended its investors reject 2017’s Follow This resolution, CEO Ben Van Beurden claimed that the resolution was “unreasonable” and said it was “not in the best interests of the company, its shareholders or the fight to tackle climate change” for Shell to take responsibility for its Scope 3 emissions, which are those generated by its customers around the world (comprising an estimated 85% of all Shell-relevant GHG emissions). The 2017 Follow This resolution called for Shell to address its Scope 1,2 and 3 emissions. By November of last year, thanks to pressure from investors that was driven in huge part by Follow This, Shell made a highly significant commitment on Scope 3 emissions, stating its “ambition to reduce the net carbon footprint of its energy products in step with society’s drive to align with the Paris Agreement goals.”
It is richly ironic that the success of Follow This in 2017 has become investors’ top excuse for rejecting the 2018 Follow This resolution, along with stated concerns about the ‘legal implications’ of a vote in support. Prominent amongst investors who publicly rejected last year’s demands from Follow This as ‘going too far’ was Hermes. It would be excellent this year to see Hermes join those climate leaders who will vote in support of Paris-compliant targets from Europe’s largest oil and gas company.
There is already a fine group of institutional investors who have not only decided to vote for Resolution 19, but have chosen to make this intention public. These investors are too numerous to name in full but include prominent asset managers such as Aegon (the 2nd largest investor in the Netherlands), Candriam, Sarasin, and Actiam. Asset owners too have been stepping up including PME in the Netherlands, The Church of England’s pensions board, the Environment Agency Pension Fund and local government funds in Islington, Ealing, Lewisham and South Yorkshire. Other asset owners and managers across the world have privately told ShareAction and Follow This they will vote in support next week. We applaud the leadership shown by these investors.The context for this resolution could not be more serious. As that ‘stubborn climate optimist’, Christiana Figueres, has made helpfully clear, “bending the curve of emissions by 2020 is the only way to limit global warming and ensure that the Sustainable Development Goals remain within our reach”. Those institutional investors who support Resolution 19 next week at Shell will demonstrate that they understand the urgency of the hour. Mission 2020 has rightly pointed out that “the later the financial sector becomes aligned with the Paris objectives, the more abrupt the adjustment will be, and the higher the risk of assets becoming stranded”. Every month that passes without meaningful action from high carbon companies could be costly, especially for younger generations who have the least power to influence the actions of the world’s highest emitting firms. Fiduciary investors managing assets of younger people have particularly compelling reasons to support this resolution.
Investor signatories to the CA100+ initiative have every reason to use this resolution to demonstrate to corporate boards worldwide that on climate change they mean business.
The vote on 22nd May at Shell’s AGM will sort investors into three groups: those willing to act to address the risks of climate change; those unwilling to act who have done a lot of talking about the risks of climate change; and those who neither talk nor act on the matter. In 1963, Martin Luther King penned a famous letter from inside Birmingham, Alabama’s city jail. Arrested for non-violent action in Birmingham, King use the time behind bars to reflect and write about the movement he was leading. His letter was stinging in its criticism of privileged ‘moderates’ who talked of their support for racial justice but who endlessly rejected now as the time for action …. “who constantly say: ‘I agree with you in the goal you seek, but I cannot agree with your methods of direct action’”. King’s letter argued that “shallow understanding from people of good will is more frustrating than absolute misunderstanding from people of ill will. Lukewarm acceptance is much more bewildering than outright rejection.”
Over fifty years later, those words are resonant for anyone looking to the investment community for leadership on this most pressing issue of our own times. There remains a tiny window within which human societies can change course to prevent the worst costs and damage of climate change. Without doubt, institutional investors are critical players in this drama. It is not an exaggeration to say that their decisions, both about capital allocation and stewardship of high-carbon companies, will influence the fate of many.
A strong vote next week in support of Resolution 19 will set the scene for more effective climate stewardship of every other listed company whose current business model is inimical with the goals agreed by governments for the benefit of people everywhere in 2015. The investment community has identified the 100+ companies responsible for the most GHG emissions. As holders of shares in those companies, institutional investors have a responsibility – and a clear financial reason – for making sure action is swift and decisive to address climate risks. Investor signatories to the CA100+ initiative in particular have every reason to use this resolution at Shell to demonstrate to corporate boards worldwide that on climate change they really do mean business.
As investors in Shell conclude their deliberations this week and cast their votes ready for next Tuesday’s AGM in The Hague, the words of another great civil rights activist, WEB DuBois, come to mind: “Now is the accepted time, not tomorrow, not some more convenient season. It is today that our best work can be done and not some future day or future year. It is today that we fit ourselves for the greater usefulness of tomorrow. Today is the seed time, now are the hours of work, and tomorrow comes the harvest and the playtime.”
Catherine Howarth is CEO of ShareAction
Note: Line 61 of this article was amended May 16, at the request of the author, to remove a statement regarding the legal implications of the vote.