Rare U.K. Shareholder Proposal Receives Rarer Company Support
Shareholder resolutions are rare in the U.K. market, and are typically seen in the context of proxy fights where an activist shareholder is seeking a change of management. However, the U.K. market is preparing itself for two high-profile shareholder resolutions at the forthcoming BP and Royal Dutch Shell AGMs.
The U.K. Companies Act 2006 permits shareholders to put forward a resolution to be considered at the next AGM if they hold at least 5 percent of the issued share capital or the group of shareholders numbers at least 100 and holds shares having an aggregate value of at least GBP 10,000 in nominal value.
A group of investors known as the “Aiming for A” coalition, which includes the U.K. Local Authority Pension Fund Forum, a number of U.K. and international pension funds, members of the U.K. Church Investors Group, and U.S. and Canadian faith investors, has filed a shareholder resolution at each company requesting that the oil companies take action to address the threat of climate change.
The resolution seeks to ensure that, from 2016, the routine annual reporting of both companies includes information about:
- Ongoing operational emissions management;
- Asset portfolio resilience to the International Energy Agency’s scenarios;
- Low-carbon energy research and development and investment strategies;
- Relevant strategic key performance indicators and executive incentives; and
- Public policy positions relating to climate change.
The resolution states that this additional ongoing annual reporting could build on the disclosures already made to CDP, or those made within the companies’ existing sustainability reporting or annual report. The resolutions have been filed and are expected to appear on the ballot at both AGMs.
In a surprise move, on Jan. 29, Shell wrote to its shareholders to announce that the board had considered the resolution and has decided to recommend that shareholders support the resolution at the AGM. In the letter, Shell states that it will provide additional reporting in 2015, in advance of full reporting in response to the resolution in 2016, on the following topics:
- Ongoing operational emissions management;
- Asset portfolio resilience to post-2035 scenarios;
- Low carbon energy R&D and investment strategies;
- Strategic KPIs and executive incentives; and
- Public policy interventions.
The company states that these disclosures will be made in the most appropriate annually updated report or website location which may include its sustainability reporting and emissions reporting websites.
The board of BP is understood to still be considering its response to the resolution.
The “Aiming for A” coalition was convened by CCLA Investment Management in 2011/12 and the group states that it is undertaking in depth engagement with the 10 largest U.K.-listed extractives and utilities companies, with a particular focus on the companies’ CDP (formerly the Carbon Disclosure Project) performance bands. The CDP is a global not-for-profit organization, founded in 2000 and headquartered in London, which encourages corporations to disclose their greenhouse gas emissions and exposure to water and forest risk.
The last time BP and Shell faced shareholder resolutions was in 2010 on the topic of tar sands. The 2010 resolutions requested that each company produce a report on the company’s assumptions relating to their investment in Canadian oil sands. Both resolutions received slightly over 5 percent of votes in support.
In general, the U.K. market has seen few shareholder resolutions related to environmental and social issues in recent years. One of the most high-profile, since the BP and Shell tar sands resolutions in 2010, was the shareholder resolution at the National Express Group plc AGM in 2014.
The National Express Group placed a shareholder resolution filed by the International Brotherhood of Teamsters General Fund as well as certain Local Authority Pension Fund Forum members on the ballot at its 2014 AGM. The proposal sought the inclusion of human capital within the remit of the Board’s Safety and Environmental Committee, the consequent renaming of that committee, and the adoption and monitoring of a workplace human rights policy designed to ensure compliance with the International Labor Organization’s Declaration on Fundamental Principles and Rights at Work. Statements by the proponents indicated that the proposal was prompted by allegedly inadequate human capital management at the company’s U.S. subsidiary, Durham School Services. At the AGM it received less than 13 percent of votes in support.
The idea of submitting a shareholder resolution under extreme circumstances has received greater emphasis in the 2015 edition of the U.K. National Association of Pension Funds Corporate Governance Policy & Voting Guidelines. Time will tell whether this marks a bellwether for U.K. market practice amongst the more progressive asset owners. — Jocelyn Brown, ISS U.K., with additional research by Ian Greenwood, Pauline Lecoursonnois, and Limor Bernstock.
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