It’s AGM season in the northern hemisphere and many companies, particularly those in the oil and gas sectors, are facing more shareholder activism than ever before – most of it driven by climate change.
On May 25th, Exxon Mobil and Chevron’s unwilling boards will face off against no less than eight shareholder resolutions including disclosure of how the companies are placed to survive government policy to limit global warming to below two degrees, carbon emissions reduction and political lobbying.
Australian super funds and their proxies will be voting on these resolutions. Unfortunately, despite their insistence that engagement with companies is the the best way to reform them, our super funds are usually missing in action on climate change resolutions, voting against items that would help companies adapt to climate change.
This is why it matters.
In order to have a chance of avoiding catastrophic climate change, no more than 20% of existing fossil fuel reserves can be burnt. Meaning many companies, including Chevron and Exxon Mobil, are sitting on stranded assets in the form of ‘unburnable’ reserves.
Firms investing in these potentially stranded assets are gambling shareholders’ money along with the global climate. Increasingly, shareholder resolutions like these are gaining serious traction.
Over 30 large investors managing $6 trillion have pledged their support for one of the Exxon Mobil resolutions filed by the Church Commissioners for England and the New York State Comptroller.
Additionally, one thousand academics from Cambridge, Harvard and Oxford have also signed an open letter to the companies’ largest shareholders, urging them to back the proposals.
Despite the shifting tide, not a single Australian super fund has publicly declared their support – even though they likely have hundreds of millions of dollars invested in both companies and constantly spruik their engagement with fossil fuel companies as an alternative to divestment.
If super funds are invested in Chevron and Exxon Mobil passively – through an index fund – then it’s likely they will vote against the resolutions. Blackrock and Vanguard control much of the indexed investment market, and neither manager voted for a single climate-change related resolution in 2014-15.
This is at odds with the views of Vanguard chief executive Bill McNabb, who argues against divestment, stating “you are better remaining an owner and being able to engage with the company”. Vanguard’s definition of engagement clearly doesn’t extend to voting against the board. Investor activist group ShareAction have written to Vanguard – the largest shareholder in both Chevron and Exxon Mobil – calling on them to support the resolutions.
Last week, HESTA chair Angela Emslie declared that “divestment is really the issue of last resort”, implying that her fund prefers to engage with companies, rather than get out altogether.
Market Forces’ analysis of HESTA’s international voting record shows that they are one of the more engaged super funds, voting for 65 of 90 resolutions (72%) related to climate change in 2015. Conversely, Australia’s largest super fund, AustralianSuper, voted for just 33 of 95 resolutions (35%); VicSuper voted for only 6 of 48 resolutions (13%). It is to their credit that they publish their voting record at all, most super funds don’t.
Even though Australian super funds are relatively minor shareholders in both companies, publicly declaring support for resolutions in the US does have merit. Primarily, every shareholder matters – earlier this month, a 2 degree stress testing resolution at Occidental Petroleum only just failed to pass, garnering 48.99% of the vote. Just a few more institutional investors could have made the difference.
Secondly, by publicly declaring support for resolutions at big oil companies in the US, it sends a signal to Australian oil and gas companies – like Santos and Woodside – that they must respond to climate change. It is likely that they too will soon face similar resolutions.
Thirdly, super funds have an obligation to their members to manage climate risk effectively. They can do this by ensuring that every company in which they’re invested is managing climate risk too. Although, the idea that a pure-play fossil fuel company can effectively manage climate risk is debatable.
Chevron and Exxon Mobil each have a significant presence in Australia. According to ATO data, Chevron earned revenue of $3.03 billion in Australia in 2013-14, Exxon Mobil earned $9.62 billion. Notably, neither paid any corporate tax. Simply put, these are large companies employing thousands of Australians – of all their international shareholdings, these are the companies our super funds should be most engaged with.
Super funds make a big deal of their engagement with companies. It is their primary argument against divestment from fossil fuels. If they genuinely believe that companies like Chevron and Exxon Mobil will survive in a post carbon economy then that engagement must be tangible. With just a week to go before the vote, now is the time for our super funds to publicly declare their support for these resolutions.
Daniel Gocher is an analyst with Market Forces