Pension funds LAPFF, CalPERS and NYCERS back climate proposals at Aussie oil major Santos

Workers’ capital throws its weight behind the ACCR, as proxy advisors support climate resolutions

Climate proposals filed by the shareholder advocacy group the Australasian Centre for Corporate Responsibility (ACCR) at Australia’s oil major Santos will be supported by public employee pension funds worldwide, as well as by proxy advisory firms ISS, Glass Lewis and PIRC, among others.

ACCR’s proposals centre on Paris-aligned targets for Scope 1, 2 and 3 emissions, as well as enhanced disclosures of climate-related lobbying, and could be backed by at least $1trn (€911bn) worth of public employees’ assets under management. The AGM will be held tomorrow – virtually, in response to Covid-19 restrictions.

"The support of ISS and Glass Lewis shows the extent to which Santos is a laggard on climate issues," – Dan Gocher, ACCR

Among the pension funds are: the California Public Employees Retirement System ($376.8bn), the California State Teachers Retirement System ($230.2bn), the New York City Employees Retirement System ($200.8bn), the UK’s Local Authority Pension Fund Forum, which represents 80 public sector funds holding more than £250bn (€282bn), Australia’s Local Government Super (AU$10bn, €5.5bn) and HESTA, the Australian industry superannuation fund for workers in health and community service sectors (AU$55bn).

Last year, Santos managed to block ACCR’s proposals based on a technicality. The non-profit group has described its engagement with Santos as “relatively hostile” and remains concerned that the virtual format of tomorrow’s AGM “may be used to constrain debate”.

North American proxy advisors ISS and Glass Lewis have recommended clients to vote for both proposals. Likewise, PIRC, which advises LAPFF, ACSI, which represents the biggest pension funds in Australia, and Regnan will recommend backing the shareholder proposals.

Dan Gocher, Director of Climate and Environment at ACCR, said that the support of ISS and Glass Lewis shows the extent to which Santos is a laggard on climate issues.

Gocher said: “Proxy advisers are generally very conservative institutions, and have historically been reluctant to recommend voting in favour of shareholder proposals, particularly in Australia.”

ISS said in its report that investors could benefit from additional climate disclosures. It said that Santos lacks “alignment of its GHG emissions with Paris Agreement goals under reasonable assumptions” given the “growing capital expenditures into natural gas exploration and production and the company’s rising GHG emissions.”

Glass Lewis stated that while Santos had set an "aspirational" net-zero operational emissions target for 2050, “we believe that setting and reporting on the requested targets would provide an opportunity to add additional rigour to its target-setting process.”

Both also recommended investors to back ACCR’s proposal on lobbying. Docher said: “Santos has consistently refused to acknowledge the role of its industry associations in obstructing effective climate policy. Shareholders must also be wary of the Santos CEO’s close relationship with influential MPs.”

Glass Lewis stated that the resolution could help Santos mitigate potential reputational risks, given “the controversial nature of the positions of certain industry associations, including those to which the company belongs.”

However, under Australian law, both proposals are effectively non-binding, as they depend on another “special resolution” being passed with 75% of the votes.

As the ACCR explains, shareholders in Australia need to propose two-part resolutions. The first is the "special resolution" that requests amendment of the company’s constitution to allow ordinary resolutions to be placed on the ballot.

“It is open to our company’s board to simply permit the filing of ordinary resolutions, without the need for a special resolution,” ACCR stated.

It is unlikely that the “special resolution” (which is instrumental to the other two ordinary resolutions on climate targets and lobby) would pass, as Santos’ board, which opposes it, controls 30% of shares. Santos owns 15% of shares and Chinese firm ENN Ecological Holdings, whose President sits on the board, has another 15% stake. 

According to the proxy firms, ENN has a stake in Chinese private equity Hony Partners Group, which owns a further 15.1% of share capital.

ISS recommended to vote against the special resolution, Glass Lewis recommended abstention, while PIRC recommended to vote for.