Energy crisis turns investors off prescriptive shareholder resolutions

In a recent stewardship update, BlackRock, the world’s largest asset manager, warned that it will support fewer shareholder resolutions on climate change this year because they have become too extreme and prescriptive.

The asset manager’s stewardship arm, BlackRock Investment Stewardship, BIS, stated how the US Securities and Exchange Commission’s revised guidance on shareholder proposals has broadened the scope of permissible proposals resulting in a marked increase in environmental and social shareholder proposals of varying quality coming to a vote.

“Our early assessment is that many of the proposals coming to a vote are more prescriptive and constraining on management than those on which we voted in the past year,” said BIS.

Elsewhere the note, which suggests a shift in stance since BlackRock pledged to up its use of its voting powers to influence sustainability in the thousands of listed companies in which it invests, stated how companies face challenges in the near term given under-investment in both traditional and renewable energy. It has resulted in an energy shortage that is now exacerbated by current geo-political tensions.

With this in mind, BIS said it is particularly wary of shareholder proposals to thwart financing traditional energy companies. Similarly it is unlikely to support resolutions which force companies to decommission assets or set absolute Scope 3 emission reduction targets. Moreover, BIS noted that other investors and global proxy advisors ISS and Glass Lewis have been recommending that shareholders not support overly prescriptive or constraining proposals either.

Looking out on today’s landscape, the note states that BlackRock is not likely to support resolutions that it deems to micromanage companies. This includes those that are unduly prescriptive and constraining on the decision-making of the board or management; call for changes to a company’s strategy or business model, or address matters that are not material to how a company delivers long-term shareholder value.

In 2021, BIS supported 47 per cent of environmental and social shareholder proposals in a strategy it says is designed to be both consistent with long-term value creation but not unduly constraining on management in pursuing their strategies to create shareholder value.

Push back

Elsewhere, evidence is growing that the energy crisis is leading other investors to back off pushing for climate resolutions at the big oil groups. Follow This, a small activist investor and campaign group based in the Netherlands with stakes in several oil groups, saw support for its climate resolution at BP’s recent AGM drop to 15 per cent from 21 per cent last year.

“BP may have convinced investors that addressing the current energy shortage overrides addressing climate change,” said Mark van Baal, founder of Follow This in a response. “Neither our climate resolution nor BP’s strategy have changed; their current strategy still does not lead to emission reductions by 2030. However, investor sentiment apparently has changed, likely as a result of the energy crisis and windfall profits brought on by the war in Ukraine.”

Elsewhere, shareholders in US oil and gas producer ConocoPhillips didn’t support a proposal to include Scope 3 greenhouse gas emissions in its emissions reduction targets, with only 39 per cent of shareholders voting in favour of the motion.

This contrasts with last year when companies faced an upsurge of shareholder support for resolutions and votes on environmental and social issues. Like ExxonMobil, forced to take on three new directors on its board, marking a landmark win for activist investor Engine No. 1.