Investors get louder on demands for climate action: boardrooms stall and lurch in response

May 21st 2024

Institutional investors and shareholder advocacy firms across the world are increasingly calling for more action from energy companies in response to the climate challenge but the responsiveness of boardrooms remains tentative and varied.

At Equinor ASA, Norway's 67% state-owned energy company's annual general meeting (AGM) on May 15, the defeat of a joint shareholder resolution  (Resolution 15), calling for the company to align its strategy with the goals of the Paris agreement at the AGM has been described as "particularly surprising" by Natasha Landell-Mills, Head of Stewardship at UK-based Sarasin and Partners LLP, "given the clear commitment by the Norwegian government to require alignment with the Paris agreement in those companies in which it holds stakes." The resolution was proposed by Sarasin & Partners LLP (Sarasin), Kapitalforenigen Sampension Invest (Sampension), West Yorkshire Pension Fund and Achmea Investment Management.

While Sarasin welcomed support for its resolution by over 30% of non-state affiliated shareholders, its disappointment in the AGM is clear: comments shared on the social media networking site LinkedIn are headlined "Equinor is Running Out of Time To Lead The Transition." The Equinor board rejected all the climate shareholder resolutions at the AGM, including a call to split the company into two parts - one for oil and gas production and one for renewable energy, and to phase out petroleum production by 2040.

Resolution 14, put forward by the environmental group Greenpeace Nordic and the World Wildlife Fund (WWF)  Norway proposing that Equinor should nominate candidates for future board appointments with good competency on the energy transition and sustainability, was also rejected by the board.

Storebrand Asset Management, which holds a 0.7% stake in Equinor, said the company's current strategy and capital expenditure plans "do not align to its overarching commitment" to the goals of the Paris Agreement, while Norway's largest pension fund which holds a 0.6% stake, said that its vote in favour of the resolution should be seen as a clear signal to the company that it should revise its energy transition plan.

In its response to shareholders and Resolution 15, Equinor's board of directors points to the multiple changes required by the energy transition, stating : "A just and balanced energy transition, which also considers impacts on nature and people, will necessarily take some time. In this context, Equinor will continue to provide energy to the market while at the same time reduce emissions from our operations and invest in the necessary systemic change towards a more sustainable and resilient energy system."    

At the Australasian Centre for Corporate Responsibility (ACCR) , Martin Norman, Investor Engagement Lead, said:“Equinor’s non-state investors are extremely concerned that the company lacks the ability and willingness to align with global temperature goals. They have made that clear with (the) unprecedented vote against Equinor management’s recommendation."

“This should be a wake-up call for Equinor’s board and management. The pressure on them to deliver real reductions in emissions will only increase from here", he added. ACCR's analysis finds that Equinor's exploration restricts capital availability for projects that support the energy transition and "is unlikely to generate positive free cash flow until the 2050s" when, the shareholder advocacy group says "it will be too late."

In the UK, Equinor has repeatedly run into trouble with allegations of embellishing its environmental focus and a ruling by the Advertising Standards Authority late last year confronted the company's  suggestion that wind farms, oil and gas, and carbon capture play a balanced role in its energy mix. Most of Equinor's revenues still come from oil and gas and it is the largest producer of oil on the Norwegian continental shelf.

Meanwhile, in Japan there has been victory for shareholder dissent around the reliance on fossil fuels at Electric Power Development Co Ltd (J-POWER). The company has responded to two years of activism and dissent on its decarbonisation strategy and committed to closing five coal power generation units within domestic coal plants by FY 2030.

"We deemed it necessary to demonstrate to shareholders our strategy for coal power plants on a site-by-site or unit-by-unit basis" Hitoshi Kanno, J-POWER's President told a news conference on May 9, when the company released its FY 2024-2026 medium term management plan.

At J-POWER's 2023 AGM, 21% of shareholders voted in favour of a shareholder resolution calling on J-POWER to set and disclose credible short and medium-term emissions reductions targets aligned with the goals of the Paris Agreement. The resolution was filed by Amundi, HSBC Asset Management, ACCR and was supported by the Man Group. In the previous year, at the 2022 AGM, 26% of shareholders voted in support of a shareholder proposal asking J-POWER to set credible emissions targets and disclose plans to achieve them.

When announcing the closures, J-POWER President Hitoshi Kanno noted that institutional investors had voiced concerns about coal power plants becoming stranded assets. ACCR estimates that collectively these closures will prevent the release of 16.2Mt of CO2 per year.

Author: Dina Medland

Minerva’s blog focuses on the latest developments in ESG investing and stewardship. Minerva is a global provider of sustainable stewardship solutions with over 25 years of expertise. Minerva empowers investors by providing essential tools, including ESG research and data, enabling them to navigate the intricate landscape of stewardship and proxy voting, whilst ensuring their decisions are well-informed and aligned with sustainable principles.