Oil and gas should no longer be top priority for CA100+, says CofE’s Matthews

'We're at a crossroads in engagement with the oil & gas sector', says Matthews after this week's 'chaotic' Shell AGM.

Engagement with oil and gas producers is “at a crossroads” as they chase short-term profit maximisation and should no longer be a top priority for collective engagement initiative CA100+, according to Adam Matthews, chief responsible investment officer at the Church of England Pensions Board.

Matthews made the comments in a LinkedIn post the day after Shell’s AGM, which saw significant shareholder disquiet against the firm’s climate plan and directors.

Around 20 percent voted for a Follow This proposal on Paris-aligned emissions. Some 80 percent backed Shell’s own climate plan. However, support for the Follow This proposal remained roughly similar to last year.

Matthews said that the change in direction by oil and gas companies over the past year “has caused a fundamental break with the long-term interests of pension funds”.

“Engagement with O&G should no longer be a top priority of CA100+,” he said. “We should focus on demand side companies and how quickly they can exit their dependency on oil and gas.”

“Alongside emissions targets we need oil and gas exit targets and plans we can finance,” he added. “If big listed oil and gas companies no longer believe they can make a business out of renewables then the investor expectation should simply be they stop spending shareholder funds on the upstream and commit to wind down in line with the Net Zero Oil and Gas Standard.”

Matthews’ comments were echoed by PGGM, which currently co-leads engagement with Shell on behalf of CA100+.

Andres van der Linden, senior advisor for responsible investment, told Responsible Investor that PGGM shares Matthews’ view that engagement is reaching a critical point with oil and gas companies.

PGGM is preparing to divest from oil and gas companies that are not convincingly aligned with the Paris Agreement at the beginning of next year.

“The slow progress of the sector, and the lack of investor support through voting for Paris-aligned targets, suggests that our engagement and financial resources are potentially better placed in more willing, demand-side companies, whose transition would ultimately force the supply-side into action,” van der Linden said.

However, he noted that PGGM believes it should continue supporting oil and gas companies that prove that they are willing to align with Paris, as they can play an important role in the energy transition.

“Furthermore, it should be noted that oil and gas companies have progressed in the past few years, with the support of climate-minded shareholders,” he added.

At Shell’s AGM this week, some of the UK’s largest funds including Nest, USS and LGPS pool London CIV announced their votes against its chair, while the CofE Pensions Board opposed every director. However, chair Andrew Mackenzie still received 93 percent support.

Matthews said that the vote had exposed a gap “between how fund managers interpret the long-term interests of their pension clients”.

UK asset owners have previously voiced frustration with their asset managers over voting practices at European oil and gas majors. The UK Asset Owner Roundtable plans to launch a review of stewardship and proxy voting at these companies after some members raised concerns over “a perceived misalignment between our long-term interests and how investment managers are exercising proxy voting at key annual general meetings”.

Matthews said that a number of roundtable members “have been in meetings where oil and gas companies have clearly said they are being encouraged down this short-term path by their largest fund managers”.

The CofE Pensions Board co-led engagement with Shell on behalf of Climate Action 100+ for close to five years, before re-focusing on engagement with automobile manufacturers last year. Engagement is now co-led by Dutch managers MN and PGGM and the UK’s Phoenix Group.

Laura Hillis, the Church of England Pension Board’s director of climate and environment, said on LinkedIn that engagements with oil and gas companies as part of CA100+ “have sucked so much time, energy and resource compared to almost anything else”.

While Hillis said that engagement with oil and gas needs to continue and be more strategic, she said that “there’s a lot of levers and we have not been using them all”. At its AGM, Shell blamed policy and demand for not lifting climate ambition and “I think it’s time we tested that a lot more than we have been”, she said.

Hillis attended the Shell AGM, where she noted that the pensions board was “prepared to restrict investment in the company if we do not see a change in direction”.

In 2018, the Church of England’s General Synod voted in favour of a non-binding amendment that would see its investment bodies, including CEPB, divest fossil fuel companies “not prepared to align with the goal of the Paris Agreement” by 2023.

A spokesperson for CA100+ said that “our oil and gas work will remain a focus going forwards”. The group is planning a relaunch for its second phase in June, and has already confirmed plans to remove pipeline company Kinder Morgan from its focus list as part of a limited reshuffle of target companies.