UK public pension schemes urge oil companies to make ‘quality’ climate pledges

A group of local government pension schemes will vote against the chairs of oil producers failing to meet climate benchmarks and banks’ sustainability committee chairs when falling short of transition metrics.

The Border to Coast Pensions Partnership, which represents 11 local government pension schemes with about £38bn worth of assets, said that “oil majors and banks must make greater progress on climate pledges” or risk losing their support as a shareholder during the annual meetings season.

The group will vote against the chairs of oil companies that fail to meet one of the first four indicators of the Climate Action 100+ benchmark, which assesses company performance against emissions reduction, governance and disclosure, and is supported by investors with $68tn in assets under management.

It has identified Shell, BP, Total, Eni and Petrobras as examples of companies in its portfolio that fail to meet the first four indicators of the benchmark.

Border to Coast stewardship manager Colin Baines told Sustainable Views that these companies fall short of “quality targets and transition plans”. 

“While the oil companies in our portfolio have net zero targets, they don’t have short and medium-term targets aligned with climate science,” he said, adding that the pool will also vote against oil companies that scored 3 or lower by the Transition Pathway Initiative, a global project supported by investors with $50tn in assets under management. 

Baines said that for those oil companies that fail this test, Border to Coast will vote against the re-election of the chair, following a “strengthening” of the pool’s voting policy on climate-related investment strategies.

“After voting against the chairperson’s re-election, we will be engaging with these oil companies to seek improvements,” he added.

It will also vote against the chair of the sustainability committee at banks where the company has “materially failed” the first four indicators of the TPI framework. 

Transition plan for top carbon emitters

In addition, Baines said that Border to Coast has identified the top 30 carbon-emitting companies in its portfolio, which include the five fossil fuel companies, in sectors other than oil and gas, such as heavy industry, cement and aviation. The pool will ratchet up its engagement with these companies this year.

“We will be engaging them all, get a view on how well they’re managing risk, and [look at how] to implement a good transition plan. We will respond on a case-by-case basis,” he said.

At its heart there is a fundamental economic case for applying pressure to these companies, he added. “We’re a long-term investor and we need to take into account the medium to long-term risks and the reality of how the low-carbon transition will change whole sectors in the future.”

This announcement comes amid increased calls for investment managers to be aware of the risks associated with climate change in their investment portfolios during the AGM season.

Andrew Ninian, director for stewardship, risk and tax at the Investment Association, a trade body that represents UK investment managers, said in a statement on February 19 that in this AGM season, “companies’ response to climate change and the diversity of their board and top leadership teams [remain] a key focus due to their long-term nature and potential impact on company value”.

In the association’s Shareholder Priorities for 2023 report, published in February, it noted that across the FTSE 100 the share of companies making statements related to climate transition risk was still “quite low”, hovering at a little over 50 per cent in 2022, up from 15 per cent in 2021.

By contrast, last year during the US’s AGM season, BlackRock, with $10tn in assets under management, took issue with the detail in the climate-related proposals in shareholder meetings, claiming they were “more prescriptive or constraining on companies” than the previous year and “may not promote long-term shareholder value”.

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