Santos faces shareholder pressure ahead of AGM

April 4, 2023

Santos Ltd will hold its 2023 AGM on 6 April and has faced shareholder criticism over its climate ambitions and executive remuneration.

At Santos Ltd’s AGM in 2022 the oil & gas firm received a significant vote against its climate transition action plan; with around 40% of the shareholder ballot withholding support (34.92% against votes + 5.43% abstentions).

With Woodside Energy the only company recording a lower support vote on its climate plan, the Santos vote is the second highest level of dissent recorded on a say on climate vote. The result highlights that a significant number of shareholders have concerns about the strength of the company’s climate ambitions.

At the same time, Santos is facing ongoing federal court proceedings over alleged “greenwashing”. In particular, the court case focuses on Santos’ representations about gas as “clean energy” and whether it has a “clear and credible” climate transition action plan to achieve net zero by 2040.

As the Company has operated a triennial vote on its climate plan, there is no management-proposed climate vote at this year’s AGM. However, a shareholder-filed resolution asks the Company to disclose annual information that demonstrates how the Company’s capital allocation to oil and gas assets will align with a scenario in which global energy emissions reach net zero by 2050, facilitating the efficient phasing-down of these assets.

A similar shareholder proposal was filed last year, which received 14.86% votes in favour. Santos is recommending shareholders vote against the proposal.

Last year Santos also received a first strike on its remuneration report due to shareholder concerns over the grant of a one-off A$6m growth incentive that sits outside the usual incentive pay framework.

Under the Australian remuneration strike system, should the Company receive an against vote of 25% or more on its remuneration report at the upcoming AGM, shareholders will also vote on a ‘board spill’ resolution which if approved means all directors will have to stand for re-election within 90 days of the AGM. However, board spill resolutions rarely, if ever, pass as shareholders are hesitant to destabilise the board.

In addition to these issues, activist investor Snowcap has launched a “Reform Santos” campaign. Snowcap argues that Santos’ upstream growth strategy is the most aggressive of any major listed oil and gas company and is misguided and driven by executive incentives, which are not aligned with shareholder interests. In a letter to the Santos Board, Snowcap called on the board to take action to reduce upstream capex, increase capital returns and realign executive incentives.