With two high-profile AGMs taking place at oil majors Total and Chevron this week, Tim Goodman, Director in Hermes EOS, the stewardship team of Hermes Investment Management, outlines our engagement with the firms, acknowledges progress made and highlights areas for improvement.
“At the AGM of Total, taking place today, Hermes EOS welcomes the publication of the company’s climate report, Integrating Climate into our Strategy, which has been produced in response to the reporting framework of the Aiming for A investor coalition.
“We commend the leadership that Total has demonstrated on climate change, especially its strong support of the UN Global Compact’s Business Leadership Criteria on Carbon Pricing, the Oil & Gas Climate Initiative and the Carbon Pricing Leadership Coalition. We are encouraged that the company will spearhead ambitions in the electricity value chain by expanding its midstream and downstream gas activities, as well as investments in renewable energy and energy efficiency.
“We are also encouraged by the company’s swift response to our engagement and the constructive dialogue we have had with Total over the past year, which has included meetings with the company’s chair and senior members of its executive. While this is only the beginning of the journey for the company in managing the risks it faces as a result of climate change, it is certainly an important step in the right direction.
“To achieve this outcome, Hermes EOS, on behalf of its 42 clients, worked with a number of asset owners and managers, including CalPERS and Établissement de Retraite Additionnelle de la Fonction Publique (ERAFP), with more than $2 trillion of assets under management who are welcoming the publication of the Integrating Climate into our Strategy.”
“At Chevron’s AGM on 25 May 2016, Hermes EOS will present a shareholder proposal that it has co-filed with the UMC Benefits Board which manages $20 billion in assets on behalf of 92,000 United Methodist Church pension participants and more than 100 United Methodist institutional clients.
“The resolution focuses on one aspect of the Aiming for A reporting framework, reporting on how the company’s business model will be affected by a world in which global warming is limited to two degrees Celsius. BP, Royal Dutch Shell and Statoil shareholders voted almost unanimously to adopt the Aiming for A framework in 2015 and have begun to report on this and the other aspects of the framework. In addition, oil and gas companies such as ConocoPhillips and Suncor have also begun to report on their resilience to a world in which global warming is limited to two degrees Celsius.
“We aim to encourage Chevron to keep in step with developing best practice in the oil and gas industry on reporting on climate change risk. We also wish to have collaborative and constructive dialogue with its board and senior management on how the company plans to evolve as we move to a low carbon world. We seek to be a friend to the industry and look forward to publicly praising Chevron in future as we are doing with Total today.
“We expect stricter reporting on asset portfolio resilience to the climate scenarios outlined by the International Energy Agency to become a standard requirement for companies exposed to the effects of the transition to a low-carbon economy. Companies should look to embrace these changes sooner rather than later, not least because the Taskforce on Climate-Related Financial Disclosures, convened by Mark Carney as chair of the UK’s Financial Stability Board and chaired by former New York City Mayor Michael Bloomberg, is consulting on climate change disclosure by companies.”
Aiming for A
In addition to reporting on scenarios relating to how their businesses may be affected by global warming that is limited to two degrees Celsius, the Aiming for A investor coalition also asks that extractive industry companies report annually on:
• Ongoing operational emissions management;
• 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 oil and gas industry will be one of the most affected by the transition, with direct impacts on, among others, demand for fossil fuel and commodity prices. The ratchet mechanism agreed as part of the COP 21 climate change agreement in Paris in December 2015 also means that companies will need to be prepared for stronger policy action on climate change over time.