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What To Watch: Issue #4

June 12, 2019

With so many operational priorities, it’s understandable why publicly-held oil and gas companies aren’t tracking climate-focused shareholder resolutions. Commodity prices, drive for operational efficiencies, and rising regulatory scrutiny are top of mind. In 2014, you could dismiss investor resolutions focused on climate change. Today, your company needs to have an answer before a resolution asks the questions.

Both of these things are true:

  • Shareholder activists are targeting companies for operational efficiency to raise share prices.
  • A growing wave of climate-focused shareholder resolutions are on their way to your company.

The problem:

Publicly traded oil and gas companies can expect to be hit with a climate-focused shareholder resolution in the next 24 months, whether or not they’ve seen one before. A wide range of proponents, from the Presbyterian Church to the New York City Comptroller, have taken resolutions to proxy votes on these issues.

In 2014, methane, or climate related shareholder resolutions could be expected to garner around 20 percent of the vote. This percentage grew steadily until 2016 and 2017, when three E&P companies were surprised by the passage of resolutions. (I didn’t want to pick on anyone, but the resolutions were big news.) 

Figure: Shareholder votes on climate resolutions introduced at three U.S.-based E&P companies; two passed in 2016 and the third in 2017.

Example resolutions we’re seeing include:

  • Report on the risk and mitigation of a 2-degree in temperature increase (a significant milestone for climate change hawks) for the company; and
  • Report on methane emissions reduction targets.

In 2018, approximately half of the climate-related resolutions targeting E&P companies were “withdrawn” because they received a commitment to address the issues from the operator.

It matters because

Shareholder groups focused on climate action are becoming increasingly savvy on how to engage with companies to drive change.

The critical mistake companies are making

Responding to these resolutions in a one-off fashion, often defensively and superficially, which increases the likelihood of additional resolutions being introduced and passed. Companies that engage proactively with likely resolution proponents in many cases can avoid or have the resolution withdrawn.

Seize the daySuccessful companies will:

  • Create a proactive ESG strategy. This strategy must be grounded in your company values and drive company culture. Sound familiar? This is a familiar theme throughout this series. The best defense is a great offense.
  • Think bigger. Increasingly shareholder resolutions are looking to drive core company investment and business strategy. As your company evaluates its risk and response, as discussed in What to Watch Overview and What to Watch — Private Financing, contemplate the elements of a holistic response. What key company values, business objectives, and long-range investments can be influenced by a proactive ESG strategy?
  • Get moving. Your company needs to have this work underway, so you can meet with institutional investors to prevent, or if required, address future resolutions proactively and positively. You’re either leading, or you’ll be targeted to match those who are.

Mid-size independents may have trouble making the case to their Boards that investor resolutions regarding climate are likely — that’s one of the reasons I’m writing this series. If you’d like me to explore examples in more detail, please reply.

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