Influential investor joins shareholder rebellion over Shell’s climate plan.

Legal & General Investment Management, Britain’s biggest fund manager, piles pressure on oil firm

Britain’s biggest fund manager has piled pressure on Shell after joining a shareholder rebellion over the oil company’s carbon-cutting plans, saying that they lack credibility and the ambition required to combat global heating.

It has emerged that Legal & General Investment Management (LGIM), one of the oldest fund managers in the City of London, was among investors behind a significant shareholder vote against Shell’s climate transition targets at the company’s annual meeting on Tuesday.

The asset manager, which is part of the insurer Legal & General and manages more than £1.2tn of assets, told the Guardian that it joined activists demanding faster progress because it did not believe the Anglo-Dutch company’s plan was credible.

Although acknowledging progress was being made by the company’s management to boost low-carbon investment, LGIM said: “We remain concerned that the strength of interim targets (up to 2035) and disclosed plans for oil and gas production fall short of the level of ambition required for the company to credibly claim alignment with a 1.5C pathway.”

At the meeting, a shareholder resolution calling for Shell to do much more to tackle the climate emergency by setting binding carbon emissions reduction targets received 30% of votes. LGIM was among voters in favour.

The result represents an escalation of the pressure on Shell and means the company will be forced to consult shareholders and report on their views within six months.

The resolution was put forward by Follow This, a campaign group that uses activist investment to put pressure on oil companies into decarbonising in line with the limits set by the 2015 Paris climate agreement.

Shell put forward a vote on its own “energy transition strategy” to reduce carbon emissions. The resolution passed, with 88% of votes cast in favour. However, despite expressing some reservations over both votes, LGIM turned against the management strategy in favour of Follow This.

Mark van Baal, the founder of Follow This, said: “This is really a very strong signal to the board of Shell that their current targets are not sufficient to reach the [aims of the] Paris climate agreement. That is what investors one by one are realising.”

LGIM has been increasingly vocal about the climate crisis: last October it announced it was expanding its engagement activities in this area and would “systematically hold companies accountable through voting and investment sanctions”. In March, its chief executive, Michelle Scrimgeour, said the coronavirus pandemic had “underscored the importance of tackling looming threats – like that of a climate catastrophe – before it is too late”.

Some of the group’s largest funds held by UK investors and pension plan customers include Shell among their biggest holdings.

Under the Paris agreement, almost 200 countries agreed to limit global temperature increases to well below 2C, with an aspiration not to breach 1.5C above preindustrial levels.

In February, Shell said its strategy “supports the most ambitious goal of the Paris agreement … to limit the global temperature rise to 1.5C”.

It plans to cut the overall carbon intensity of the energy it produces by 20% by 2030 and by 45% in 2035, before reaching an absolute emissions cut of 100% by 2050. The shorter-term targets will include a modest decrease in oil production and an expansion of its gas business.

However, Follow This said Shell’s absolute emissions could fall by as little as 10% over the next 10 years. LGIM said that “while on this occasion” it backed the activist group, it had reservations about Follow This’s objective of using shareholder power to turn oil and gas firms into renewable energy companies. It said a strategy of “managed decline” was an equally viable option.

Shell said in a statement earlier this month that it would “seek to fully understand the reason why shareholders voted as they did” and would formally report back to its investors within six months.

Ben van Beurden, Shell’s chief executive, said shareholder support “is critical” as the company works towards its target of becoming a net zero emissions business by 2050. He added that the AGM vote on its transition strategy was a first for an energy company “and we are pleased shareholders demonstrated their strong endorsement, with more than 88% of votes cast in favour of our strategy”.

24 May 2021

The Guardian