BP, Shell Put Oil Ahead of Earth, ESG Group Warns Investors

Performance targets of energy companies Royal Dutch Shell and BP remain too heavily biased towards hydrocarbon production, a report has warned.

ShareAction — a U.K. charity that promotes environment, social, and governance-oriented investing — looked at BP and Shell’s greenhouse emissions management policies, asset portfolio resilience, corporate key performance indicators, executive incentive structures, and influences on public policy. The group concluded that the oil giants prioritize the production of fossil fuels, which could incentivize management behavior “misaligned” with shareholder interest, as defined by ShareAction.

The activist group urged investors to step up pressure on the two businesses for corporate policies supportive of “<2°C” — a less than 2°C rise in global temperatures by the end of the century.

“Given the potential risks faced by asset owners and asset managers from climate change, ShareAction believes that it is now prudent for investors to escalate engagement with BP and Shell to request clear planning around a time-bound <2°C transition strategy,” the report states.

“This strategy would require milestones for implementation and a shift away from high risk and high carbon assets. Such action would signal a meaningful commitment by the companies to make progress towards a low carbon business model, and safeguard capital under disruptive low carbon scenarios.”

Oil and gas companies’ climate policies have become the target of investor scrutiny along with their balance sheets, and companies themselves the target of pushback. In May, ExxonMobil shareholders voted in favor of annual climate risk reporting, including representatives from passive managers BlackRock and Vanguard.

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In response to the ShareAction report, Tim Goodman, director at Hermes EOS, told Institutional Investor that the fund group would “like to see both BP and Royal Dutch Shell report against the recommendations of the Financial Stability Board’s Task Force on climate-related Financial Disclosures.” Goodman added that Hermes EOS expects “improvements” in climate-related reporting in 2018.

“We think that both companies should report publicly on a greenhouse gas emissions reduction target,” he said.

Thursday’s report follows a series of protests from some of Europe’s largest asset managers and pension funds at Shell’s annual meeting in May, over the group’s progress on adopting stricter greenhouse gas reduction targets. At the time, Pieter van Stijn, a senior advisor for PGGM Investments, criticized the board for inadequate corporate greenhouse gas reduction goals “despite multiple demands from investors.”

Shell declined to comment on ShareAction’s report, and BP did not respond by time of press.