Helen Wildsmith: An ‘Aiming for A’ update for UKSIF’s Ownership Day

Cross-border collaboration increasing as investors focus in on Chevron and Exxon’s AGMs

It’s Ownership Day here in the UK – an ideal time to reflect on stewardship, update you about this year’s mining resolutions, and look at some of the ripples from last year’s BP, Shell and Statoil AGMs.

Ownership Day is a UK Sustainable Investment & Finance (UKSIF) initiative born out of the long-standing focus on company engagement amongst its members. Over recent years investor stewardship has become codified at both the global and local level. The UN-backed Principles for Responsible Investment (PRI), which celebrate their tenth anniversary next month, highlight the importance of incorporating environmental, social and governance (ESG) factors into ownership policies and practices. Closer to home UK-regulated investors must now have a response to the Financial Reporting Council’s (FRC’s) Stewardship Code. Momentum that was in turn spurred on by our last government’s Kay Review, which reminded us that: “The principal role of equity markets in the allocation of capital relates to the oversight of capital allocation within companies rather than the allocation of capital between them. Promoting good governance and stewardship is therefore central, rather than incidental, function of UK equity markets.”
The FRC’s review of stewardship in the UK in 2015 highlighted ‘Aiming for A’ alongside the Kay-inspired Investor Forum as examples of collaborative engagement. Recent developments at both initiatives indicate how recognition of the benefits of collective stewardship is spreading. The Investor Forum has recently announced strong institutional backing and the global co-filer base for our mining resolutions topped $8 trillion. This helped us reach unprecedented UK milestones this winter with over 100 institutional investors and wealth management clients who have Rio Tinto in their portfolio co-filing, and, at Anglo American, the global co-filing group accounted for over 5% of the voting shares. These are tangible step changes from the usual practice of many concerned individuals and charities buying a few shares to help clear the UK’s relatively high co-filing hurdles.
As readers of Responsible Investor are aware, the boards of Anglo American, Glencore and Rio Tinto have followed their peers at BP and Shell and supported this year’s ‘strategic resilience’ resolutions. Our engagement leads are the Central Finance Board of the Methodist Church, the Church Commissioners for England, and the Local Authority Pension Fund Forum (LAPFF) respectively. Based on last year’s experience, carefully considered board-backing almost certainly means the resolutions will become legally binding at the AGMs in April and May. However, we know that some investors are keen to declare their votes publicly, often because they are asset owners in non-filing pooled funds or supportive fund managers whose policies currently preclude co-filing for various reasons.We also only sought co-filers for Rio Tinto plc and know that some investors in the Australian structure want to declare their support in a public manor too. In addition, co-filing deadlines are tight, especially when committee dates fall badly or custodian structures mean Christmas deadlines are accidently missed. For all these reasons the LAPFF website will host a list of non-filers pre-declaring their votes for the mining resolutions alongside the co-filer grid that was published early last month. If you’d like your organisation’s voting declaration to be included on the 1st or 12th April please contact Andrew Adams or Claire Jeffery who are jointly managing this process this Easter.

Before moving on to look at what’s happening in the oil and gas sector this year it’s worth repeating why we currently choose to use ‘supportive but stretching’ resolutions. Importantly, we don’t think shareholder resolutions should be the first tool for responsible investors for most ESG concerns. Behind the scenes investor engagement achieves a lot with many companies so, in most circumstances, resolutions should continue to be saved for their important escalation role. However, the multi-decade low carbon transition calls for ‘new normals’, including the new uses of old tools. We currently believe that carefully crafted shareholder resolutions can play a positive stewardship role in this context. They can help amplify the voice of long-term investors above the short-term noise of the financial markets. Boards and policy makers need to know that long-term investors understand that this is a complex collective action problem.

Space needs to be carved out for boards to report to their ultimate owners about how they are transitioning to a post-Paris Agreement world of ratcheting nationally determined contributions that aim to bring us onto to a 2 degree pathway and ultimately to net zero emissions. Jamie Bonham’s recent OpEd for Responsible Investor about his impressive work with Suncor demonstrates how this thinking has spread from the UK to Canada.
So what is happening this year at the oil and gas majors?
Firstly we continue our long-standing engagement with BP and Shell, as do the Swedish AP Funds with Statoil. Shell’s annual reporting cycle will be completed later this week, and, as Aiming for A’s engagement leads for the UK-listed majors, Rathbone Greenbank’s Matt Crossman and I will be sitting down to compare notes ahead of co-filer meetings with company reporting teams, board letters, and AGM questions in April (BP) and May (Shell).

Secondly, the ripple into continental Europe continues. As Responsible Investor reported last week, Total’s board has responded to engagement led by the Hermes Equity Ownership Services (EOS) team by agreeing to produce a report covering the five areas in the BP/Shell resolutions for their May AGM.

This builds on discussions we had in Paris on the eve of the Oil & Gas Climate Initiative’s CEO-level meeting last autumn alongside BMO Global Asset Management EMEA and major French investors. Discussions continue with Eni, whose CEO spoke about the long-term strategic importance of gas and renewables at their strategy presentation last Friday. Much of this work extends to the Institutional Investors Group on Climate Change’s (IIGCC’s) corporate engagement group, which will have a resolutions sub-group ready for the 2017 AGM season. I’m honoured that I’ll be the first chair of this sub-group, and I am looking forward to co-ordinating across the current UK-based ‘Aiming for A’ core investor group, the major UK and continental European institutions who have encouraged their membership-body to take this step, and other institutional investors who are potentially interested in taking what has been learned over the last five years to other sectors in future AGM seasons.
Finally I think the most interesting AGM activity relating to the low carbon transition is likely to happen in the US this year.As usual several resolutions have been filed, including transatlantic ones focusing on the 2 degree stress-testing at the heart of the ‘strategic resilience’ resolutions we filed in the UK in 2015 and 2016. Responsible Investor’s own voting declaration process this year will focus on the Exxon and Chevron AGMs, so watch this space if you’d like to declare your votes in early May for the resolutions that end up on these ballots after the Securities and Exchange Commission and related processes have finished. Keep up-to-date in the interim here.
Although Ownership Day is a UK initiative it is great to see collective stewardship flourishing across borders. On behalf of the ‘Aiming for A’ core group of nine UK-based investors (including Sarasin & Partners, the Pensions Trust and the Church of England’s Pensions Board) I’d like to end by thanking all our local and global collaborators. Your support is much appreciated, including your voting declarations ahead of this year’s AGMs.

Helen Wildsmith is Stewardship Director – Climate Change, CCLA Investment Management.

CCLA is sponsoring UKSIF’s Ownership Day conference.