A special shareholder resolution filed for the April 15th annual general meeting (AGM) at BP, the international oil giant, has become the explosive talking point of this year’s corporate proxy season, with an intriguing twist: shareholders are not only challenging the company, but publicly locking horns on what could become an increasingly common theme: when do environmental risks outweigh potential company profit? Investors disagree over whether BP has fully disclosed major carbon and oil price assumptions underpinning controversial tar sands extraction plans in Alberta, Canada. The debate spilled over publicly this week when the influential UK Local Authority Pension Fund Forum (LAPFF) called on members to vote with BP management. The LAPFF executive, which puts forward positions for 52 pension schemes with a combined £90bn (€100bn) in assets, said it had issued the call to oppose the resolution after its own negotiations with BP had provided “sufficient evidence” that the company’s approach to tar sands development was “well-grounded”. The LAPFF said that requests for further disclosure by BP from the resolution backers had been met “in spirit” after BP met with shareholders in early February and in subsequent dialogue. In reponse, Fairpensions, the UK lobby group backed by NGOs which has been corralling supporting investors, said it was “extremely surprised” at LAPFF’s assertions. It claimed investors had not received the information theywere seeking. Responsible Investor spoke to a number of large BP shareholders who said they were split on the issue. Proxy voting agencies are also divided about which way investors should lean on the resolution laid down by 150 shareholders requesting that BP set out its economic and environmental rationale for the planned $2.8bn Sunrise SAGD development, a 50/50 venture with Canada’s Husky Energy. And more investors are joining the increasingly international fray: Australian superannuation funds, Local Government Super and Christian Super, yesterday publicly declared support for the resolution. BP could be the first installment in a lengthy and highly mediatised AGM scrap on tar sands. The battleground looks set to shift to fellow oil giant, Shell, a month later, when it holds its own shareholder gathering on May 18th. It also represents a test of back-room investor engagement versus company confrontation, and perhaps even a mixing of shareholder cultures between the adversorial US model and the low-key European approach. The question of how much investment crosses into campaigning is also up for debate. All that set against a backdrop of contentious tar sands mining, projected into the public imagination via images of dirty chasms in the ground torn apart by huge earth movers. The special resolution was filed at the start of the year by a group of shareholders – and backed by politicians and rock stars (Radiohead lead singer Thom Yorke, a well-known environmentalist, is backing
the campaign), including the UK’s Co-operative Asset Management, the Joseph Rowntree Charitable Trust, the Staff Pension Scheme of Unison, the trades union, and a group of influential religious investors. Simultaneously, a supporting coalition of NGOs such as Greenpeace and WWF alongside Unison, the UK and Europe’s biggest public sector union with more than 1.3m members and the Public and Commercial Services Union (PCS), the fifth largest trade union in the UK with over 300,000 members, began what they called an “unprecedented public mobilisation”, asking pension fund members to e-mail their schemes to push them to support shareholder resolutions. Some UK pension funds say they have received numerous e-mails from members as a result. The campaign gathered momentum earlier this month when it was backed by a group of UK Members of Parliament (MPs) who demanded that their own Parliamentary Pension Fund vote in favour and published an Early Day Motion – an open discussion book for comment by MPs. International shareholder support for the resolution has come from a group of United Nations Principles for Responsible Investment (UNPRI) signatories including Switzerland’s Ethos Foundation, which looks after CHF2.3bn (€1.4bn) in assets run on behalf of Swiss pension funds. SNS Asset Management in the Netherlands is also in favour. In the US, SRI managers including Calvert Asset management, Boston Common Asset Management, Green Century Capital Management, Trillium Asset Management Corporation and Walden Asset Management support the resolution. Behind the scenes, however, there are few of the world’s largest asset owners and managers that are not in some kind of dialogue over the BP vote, notably because climate change has become one of their majorcampaign issues. The big international investor climate coalitions have yet to take public positions on tar sands or the BP resolution. However, the Institutional Investors Group on Climate Change (IIGCC) in Europe, with investors representing over €4trillion in assets, Ceres in the US, which manages the Investor Network on Climate Risk, comprised of 80 institutional investors who collectively manage over $8 trillion in assets, and the Investor Group on Climate Change from Australia/New Zealand, representing institutional investors with total funds under management of over A$500 billion, have stepped up pressure on oil and gas companies over transparency.
Earlier this month they released new climate disclosure guidelines for the oil and gas sector and called on companies to strengthen their reporting on the risks and opportunities from climate change and evolving regulation.
The investor resolution at BP demands that the company address filing investors’ long-term sustainability concerns for the Sunrise development, which the company is expected to green light later this year. The filers say BP has not adequately assessed Sunrise’s economic and environmental viability in the light of risks from future carbon prices, eco-regulation, oil demand and price fluctuation. They have also raised concerns at potential reputation risk from environmental damage and impact on local communities. They say BP should commission a report on its assumptions in deciding to proceed with Sunrise. Riskmetrics, the influential US proxy voting group, has recommended that investors back BP. It qualified its support by encouraging the oil giant to increase its disclosure on Sunrise and noting that the company’s technical assumptions could be
questioned by alternative results for the potential costs of carbon, greenhouse gas emissions, oil profitability, and demand. Conversely, Proxy Governance, a rival US voting house is understood to have recommended that clients back the resolution. In the UK proxy voting houses say privately they could recommend abstention, suggesting they are not satisfied with BP’s response. BP is one of the few large international oil companies with no current oil sands production facilities in Canada, unlike Shell. But with oil prices surging close to $84 dollars per barrel this week – their highest level since huge spikes to $147 per barrel in October 2008 – it is poised to move in. Alberta’s oil sands reserves are estimated at 173 billion barrels – second only to the supply of Saudi Arabia – of which just 22 billion are under active development. However, environmental campaigners claim that Alberta’s oil sands exploitations are already the world’s biggest single industrial source of carbon emissions. A research paper produced in 2008 by Ethical Funds in Canada, estimated that production phase GHG emissions for synthetic crude oil may be 3-5 times higher than for conventional crude. Campaigners also point to the water intensity of extraction and uncertainty over how huge amounts of waste tailings – a by-product of the process of bitumen extraction from tar sands will be disposed. They claim that Canadian forest and wetland is being destroyed by mining and that local communities are not being adequately consulted. In a February 9th presentation to investors that included Aviva, the UK insurer and the Universities Superannuation Scheme, amongst others, Anne Drinkwater, president and CEO of BP Canada, rebutted campaigners’ concerns. Drinkwater said so-called “wells to wheels” greenhouse gas emissions of its plannedtar sands operation would be comparable to convention oil production. She said BP’s total physical footprint would be just 5% of the area leased for tar sands mining and that it had been proactive in meeting and collaborating with indigenous First Nations and Métis communities in Alberta on its plans. However, some large investors, speaking off the record, told Responsible Investor that they were seeking further clarification on BP’s GHG claims. One said: “BP has raised concerns about commercial confidentiality of some of this information, but we are still chasing info on the greenhouse gas emissions levels for this project.”
“There are some campaigners who believe that we shouldn’t be extracting tar sands at all, but is it our job to substitute ourselves for the Canadian government?
Speaking to Responsible Investor, Cllr Ian Greenwood, the LAPFF chairman, said the shareholder resolution had prompted BP to be more transparent about their plans, but that investors now needed to weigh up their role: “There are some campaigners who believe that we shouldn’t be extracting tar sands at all, but is it our job to substitute ourselves for the Canadian government? We are satisfied with the economic, environmental and social assurances we have had from the company and believe it is our fiduciary investment duty to ensure that we support BP’s sustainable extraction of tar sands.” Resolution supporters, however, say BP is not being open with the data. They say they base their long-term
investment case for the resolution on the fact that regulation over tar sands is currently weak, but could move in the other direction under public and international pressure. The debate over the economics of tar sands is sticky. It centres around the oil price – usually pitched at over $60 per barrel – at which costly tar sands production becomes financially rentable. Consensus is hard to find though. Lauren Compere, senior vice president at Boston Common Asset Management, a small BP shareholder with just over $20m in stock, says US investors have felt left out of the dialogue with BP: “There has been no outreach done to the US or Northern American investor base. She says that prior to the latest resolution, BP had not previously disclosed in detail information on many of the issues addressed by the resolution proponents regarding its Sunrise operations or detailed a business rationale for its decision to re-enter the oil sands market. US investors,she said, were used to filing resolutions then discussing the issue with the company: “Frankly, we’re surprised that BP doesn’t see this as an engagement opportunity with shareholders. We also don’t reward companies just for saying they will disclose information, we want to see results.” The BP resolution has already seen Mercer Investment Consulting, one of the world’s biggest advisors to institutional investors, take the unusual step of writing to about 120 global and UK equity managers asking them how they intend to vote at the annual general meetings of BP and Shell on the growing shareholder revolt over controversial tar sands projects in Canada. The consultant said it had asked fund managers to explain the “rationale” for their voting decision, although the consultant said it did not itself take a position on the tar sands issue nor advise on specific shareholder voting issues.
This public investor spat looks set to rumble on.