AGMs 2024: Time to oppose oil and gas expansion through votes

In the run-up to the 2024 AGMs, Reclaim Finance is calling on investors to radically change their approach when dealing with the oil and gas industry. After years of engagement that limited the climate issue to specific resolutions, often non-binding, failing to put an end to these companies’ fossil fuel expansion strategy, Reclaim Finance recommends two actions. The first is to suspend all new investments, especially in bonds, so as not to contribute to worsening climate change. The second is to integrate climate into strategic routine votes, by voting against reelection of directors, directors’ and executives’ remuneration, dividends and financial accounts, in order to sanction and try to block their climate-wrecking strategies. 

Current engagement practices have failed to put the oil and gas sector on a 1.5°C trajectory. The results achieved are derisory compared to the climate emergency [1]. 96% of oil and gas companies continue to expand fossil fuels [2], including majors such as TotalEnergies, BP and Shell. At a time when the climate-wrecking actions of these companies are costing populations and ecosystems more and more, as well as the financial portfolios of many investors, there is an urgent need for a thorough overhaul of these engagement practices, and an escalation that includes a suspension of new investments until these companies have abandoned their oil and gas expansion strategy. 

While some investors have recently decided to give up engagement with the oil and gas industry and divest from the sector, others have decided to remain shareholders but refuse to make new investments in the sector [3]. For the latter, and for any climate-conscious investor, it is necessary to rethink the way in which the climate is addressed in votes at AGMs. 

Until now, climate issues have mainly been dealt with in specific resolutions: either in climate-related shareholder proposals, or in so-called Say on Climate resolutions proposed by the management that ask for approval of the climate strategy or its implementation. This approach has limitations, as it has put climate in the background among strategic concerns, and has not prevented oil and gas developers from pursuing their fossil fuel expansion, even though investors have expressed significant opposition to them in their votes. 

Reclaim Finance is therefore calling for climate issues to be systematically included in strategic routine votes, with the aim of blocking and opposing fossil fuel expansion plans on the one hand, and to present climate as a strategic priority on the other. 

In addition, it is essential to focus climate-related voting criteria on the most impactful criterion: an immediate end to oil and gas expansion, which, according to climate science, is a prerequisite for limiting global warming to 1.5°C. 

These imperatives also apply to proxy advisors such as ISS and Glass Lewis, which have so far failed to take responsibility for climate action. In 2023, ISS and Glass Lewis both recommended to vote against climate-related shareholder resolutions filed at Shell and BP, and ISS has recently expanded its offering to include dedicated recommendations for “ESG-sceptic” investors [4].  

 Climate issues are intrinsically linked to several strategic votes at oil and gas companies’ AGMs: 

→ Re-election of directors and remuneration: A company’s board of directors and executive management are responsible for defining and implementing its strategy. As such, they must be held accountable in the event of incomplete or inadequate climate strategy, and must be sanctioned for it. In the case of oil and gas companies, fossil fuel expansion is a red line to a 1.5°C trajectory. Investors must therefore vote against the re-election of directors and directors’ and executives’ remuneration of the oil and gas developers.

→ Financial accounts and auditors: To properly reflect a company’s financial situation, financial statements must take into account all the risks to which the company is exposed, including the potential material impacts of climate change (physical risks) and the risks associated with global decarbonisation efforts (transition risks) [5]. Any new financial asset linked to fossil fuels is likely to suffer a loss of value due to regulatory or market changes related to the transition, and therefore to become a “stranded asset” [6]. Yet oil and gas companies are failing to incorporate these considerations into their accounts [7]. Investors should therefore oppose resolutions calling for the approval of financial accounts and the reappointment of auditors for all oil and gas developers [8].

→ Dividends and share buybacks: The oil and gas sector dedicates only 2.5% of its total capital expenditure to “clean” energy [9]. This very low level of spending compared with that dedicated to fossil fuels, in a context where the industry has made record profits that have largely been redistributed to shareholders in recent years [10], illustrates the lack of transformation to be expected from these companies and their determination to perpetuate the fossil-fuel era. Investors must sanction this prioritisation by voting against dividend payments and share buybacks if oil and gas companies fail to invest 50% of their capital expenditure in sustainable energy [11]. 

1.  CDP and WBA, Research reveals no oil and gas companies have plans in place to phase out fossil fuels, June 2023 
2. Urgewald, 2023 Global Oil and Gas Exit List 
3.  For example, PFZW and the Church of England Pensions Board recently announced their decision to divest from the oil and gas sector in its entirety, while Ofi Invest Asset Management and Tikehau are no longer making new bond investments in oil and gas developers. 
4.  See Reuters, Exclusive: Proxy adviser ISS expands offering of “ESG-skeptic clients”, March 2024 
5.  IASB, IFRS Standards and climate-related disclosures, November 2019  IASB, Effects of climate-related matters on financial statements, November 2020 
6. Carbon Tracker, The Grantham Research Institute on Climate Change and the Environment, Wasted Capital and Stranded Assets, April 2013 The IEA has also highlighted this risk in terms of demand for oil and gas, stating that: “If companies and investors misread demand trends amid uncertainty about the future, there is a risk of either market tightening or of over investment leading to underutilised and stranded assets.”  AIE, World Economic Outlook, 2021 
7. Carbon Tracker Initiative, Flying Blind: In a Holding Pattern, February 2024 
8. To assess the extent to which climate risks are taken into account in financial accounts and by auditors, investors can consult the “Climate Accounting and Audit” indicator in the Net Zero Company Benchmark published by the Climate Action 100+. 
9. AIE, The Oil and Gas Industry in Net Zero Energy Transitions, November 2023 
10. See The Guardian, Big five oil companies to reward shareholders with record payouts, January 2024 
11.  The IEA states that 50% of the capital expenditure of oil and gas companies must be dedicated to clean energy projects by 2030 to align with a 1.5°C trajectory, in addition to the investments needed to reduce scope 1 and 2 emissions. AIE, The Oil and Gas Industry in Net Zero Energy Transitions, November 2023 
12.  Urgewald, 2023 Global Oil and Gas Exit List