Investors face decision at BP after it walks away from collaboration with Follow This

Round up: the latest on global ESG-related resolutions

The unlikely partnership between BP and Dutch climate activist Follow This formally ended last Friday when the British oil major advised shareholders not to support the NGO’s proposal calling for Paris-aligned targets, covering all emissions, ahead of its annual meeting in May.

That advice marks the end of a collaboration that began early last year, when Follow This withdrew a resolution at BP in order to work with the firm under its newly-appointed CEO Bernard Looney. The objective was to agree on the wording of a new climate resolution that would be put to shareholders in 2021 with the board’s blessing. 

But during the process, Follow This Founder, Mark van Baal says “it became clear that BP wanted a shareholder mandate for its current strategy and we want a shareholder mandate for a Paris-aligned strategy”.

A major sticking point was on whether BP would be able to increase its emissions to 2030 and still be aligned with Paris, which Follow This says is contrary to the Intergovernmental Panel on Climate Change’s (IPCC) 1.5 degree warming scenario. 

A spokesperson for BP confirms that the absolute emissions associated with its “marketed energy products will grow up to 2030”, but says that the company believes “the net zero ambition, aims and strategy” it set out last year “are consistent with the goals of the Paris Agreement”. He adds that the “resolution would require us to go back to the drawing board” and that “such an intervention in the strategy at this stage would set back the delivery of our net zero ambition”. 

But Van Baal says BP’s decision to oppose the Follow This proposal puts the company in a  “very difficult position [because] they now have to go to shareholders and ask them to vote against [a resolution calling for] Paris-aligned targets – and we've seen with Shell and Equinor that this doesn't work for a growing minority of shareholders”.

Last year, Follow This proposals more than doubled their support at Equinor (27% of non-government votes) and Shell (14%), despite both European oil majors announcing 2050 net-zero commitments ahead of the votes. The credibility of such commitments was undermined last week by research from Climate Action 100+ showing that none of the key companies being engaged on climate topics by investors have disclosed credible net-zero strategies.

In previous years, companies’ climate commitments have served as justification for big investors not to support proposals from campaign groups. For example, the Church of England Pension Board, which coordinates shareholder engagement with Shell as part of CA100+, announced that it would not support the Follow This proposal at the Anglo-Dutch oil giant in light of the company’s 2050 net-zero “ambition”.

But could the recent CA100+ findings about firms’ climate progress prompt investors to back climate resolutions at big emitters this year?

EOS at Federated Hermes leads the collaborative engagement efforts of CA100+ with BP. Its Head of Stewardship, Bruce Duguid, says it is “reviewing” the Follow This resolution and will “engage with BP as we seek to understand to what extent it is complementary to the 2019 climate change resolution co-filed by supporters of CA100+ and passed with over 98% approval by shareholders.”

SEC continues to back shareholders on climate at US big oil

Despite the setback at BP, Follow This has had more success in the US after a proposal at Chevron avoided being thrown off the ballot by the Securities and Exchange Commission (SEC). The resolution, which is less demanding than those at European oil majors, calls on Chevron to “substantially reduce the greenhouse gas emissions of their energy products (Scope 3) in the medium- and long-term future”. 

Many will see these decisions as another sign that the SEC has fundamentally shifted on climate under President Biden, but could a ruling on a duplicate submission at Chevron give a hint of where the regulator’s ambition on climate is at the moment?

The oil giant asked the SEC to support its plans to block the Follow This resolution because it micromanaged the company. But it also asked for permission to block a second, more ambitious proposal – filed on the same day as Follow This’ – that asked it to devise a “method to set emissions reduction targets”. Of the two, the SEC gave permission to exclude the more ambitious one on the basis of substantial duplication. It’s difficult to know why, because the SEC rarely gives its rationale for decisions.

Chevron’s attempts to exclude a third – this time on the risks of stranded assets – was also thwarted by the SEC. The proposal was filed by US non-profit As You Sow and asks Chevron to report by January 2022 on “how a significant reduction in fossil fuel demand, envisioned in the International Energy Agency Net Zero 2050 scenario, would affect its financial position and underlying assumptions”.

Two for two, another racial audit proposal gets through the SEC

Yet another proposal calling for a “racial equity audit” has also survived the SEC’s assessment, this time at US financial heavyweight JP Morgan Chase. The regulator rejected the bank’s arguments that the proposal sought to micromanage the company, or that it had substantially implemented the request for an independent audit into its “adverse impacts on nonwhite stakeholders and communities of colour”. The resolution is one of eight filed at US financial giants by CTW and US labour union SEIU this proxy season. Last month, the SEC denied Citigroup’s attempts to block CTW’s proposal.

Japanese banks hit with climate proposals 

Last year saw the filing of the first ever climate proposal at a Japanese company when NGO Kiko Network (“climate network”) filed at Mizuho Financial Group and secured an impressive 34% support from shareholders. The group has returned this year with a similar proposal at Mitsubishi UFJ Financial Group, calling on it to adopt and disclose a plan to align its financing and investments with the Paris Agreement. But it won’t be the only climate resolution filed in the country this year: trading giant Sumitomo Corporation has also been hit with a Paris-alignment proposal filed on behalf of environmental non-profit Market Forces. 

‘Say on Climate’

London-based asset manager M&G has become the latest to offer shareholders a vote on its climate plans, the company announced this week. Shareholders will be asked to approve M&G’s climate transition report through a ‘Say on Climate’ resolution at its AGM in 2022.