Oil and gas investor pressure is building, with 20 climate shareholder resolutions up for review at annual meetings held by publicly-traded energy companies this month. While the climate filings cover a range of issues, improved methane management is in the mix.
Last year was a breakout year for methane investor activism. ExxonMobil’s XTO Energy subsidiary business announced a reduction plan in response to a 2017 methane disclosure resolution, with onlookers expecting more change to follow this year from others. Meanwhile, a growing global network representing 36 investors and $4.2 trillion in managed assets continue to call on companies for methane reductions.
In the second-part of our interview series with Jamie Bonham, Manager of Corporate Engagement at NEI, we talk about how influential Environment, Social and Governance (ESG) shareholder resolutions, such as methane, have been in the past. We also discuss what prompts investors to file resolutions, and the potential impact on companies.
Sean Wright, Senior Manager, EDF+Business
EDF: With multiple methane shareholder resolutions coming up this spring, do you think these efforts will have any impact on companies reducing their methane emissions?
Based on limited research available, and from what I have seen, I would say yes. The evidence shows when you’re talking specifically about resolutions on material ESG issues – with the key word being material— they do lead to improvement in ESG issues. Shareholder resolutions also lead to improvement in valuations and stock price, but only if the issue is material.
If it’s not a material issue, the resolution doesn’t necessarily have a beneficial effect. But it is clear methane is material to these companies so it’s quite likely these resolutions will lead to an uptick in performance in methane management. Research on the broader methane topic demonstrates this, and the resolutions tend to get good support, often above the 30 percent threshold.
EDF: In your experience, what typically triggers investors to file a shareholder resolution?
Companies tend to stand up and take notice when many shareholders are demanding better performance or better disclosure on an issue. When investors are actively engaged on a topic, it provides company management with the backing they need to prioritize the issue. A strong investor voice helps shift potential internal political dynamics, which is often where they could be debating if they should or should not do something and maybe most importantly, it elevates the issue to the board level. So now you have the board talking about methane, which is crucial because the board is in charge of corporate strategy and corporate risks. For the board to be directly aware of methane can only be a good thing.
Investor engagement, such as a resolution, can lead to positive change by creating space for the company to make smart choices.
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EDF: Has NEI filed a methane resolution?
We have not filed a resolution on methane for a couple of reasons. First, we aren’t having any significant push back from companies on this issue, which is a good thing. We would be filing if we were getting ignored by a company or where there wasn’t the level of dialogue on methane that investors want. In those cases where investors decided to file, my guess is there would most likely be a positive response. The second reason for not filing is tied to the jurisdiction a company is domiciled in, which is an issue facing Canadian companies, in particular. In some cases, the requirements for filing in terms of share ownership or support are simply too onerous, although this is something investors are seeking to alleviate.
EDF: What about cases where the resolutions were filed and nothing happened? Does that occur often?
NEI: Yes, several companies have had the same resolutions filed for years. The fact that investors still feel compelled to file reflects that they haven’t seen the company response they want. It’s not pointless to keep filing with that same company, because if everyone realizes that this company is ignoring the issue, then you may end up with majority support and then they have to make a credible response or face a bit of shareholder wrath.
However, this is the exception, not the norm. The majority of companies who get a resolution and get a strong vote end up saying ‘we have to do something here.’ In most cases, it leads to improvement.
The resolutions on carbon asset risk last year, where the majority of the investors voted for the resolutions, such as Occidental and ExxonMobil, led to real change. I don’t think anyone has won a majority vote on a methane-related resolution, but some have come quite close. That could be where it ends up this year.