Institutional investors must hold directors to account on climate failures
This article was first published in The Australian. Brynn O’Brien is the executive director of the Australasian Centre for Corporate responsibility (ACCR). With Vision Super and Betashares, ACCR has filed a members statement calling on shareholders to vote against the three directors up for re-election at Woodside’s AGM this month.
12 months after the worst result of any company in the world under the ‘Say on Climate’ initiative, Woodside Energy Group’s board is still refusing to change course. “Our understanding and strategy remains consistent,” the Chair said in February, blithely presenting a climate report that made no material changes to a plan almost half (49%) of its shareholders rejected outright.
This wasn’t the first time investors signalled their unease at Woodside’s approach to managing the risks and opportunities of the energy transition. In 2020, 50% of its shareholders voted in support of a shareholder resolution filed by ACCR, calling for the company to set Paris-aligned targets for its business.
The smart money knows that any oil and gas major still prevaricating on the energy transition is risking long-term shareholder value. Stranded assets anyone? Yes, the sector is raking in mega-profits right now, thanks to the war in the Ukraine, but this is nothing more than a temporary sugar hit. As the most recent International Energy Agency World Energy Outlook (IEA WEO 2022) sets out - which factors in the Ukraine disruption - demand for all fossil commodities peaks under all pathways. The IEA’s outlook for LNG demand post-2030 raises serious questions for investors about capital allocation towards new projects.
Yet Woodside is steadfastly refusing to set science-based emissions reductions targets, relies on offsets for over 100% of its emissions reductions, and unlike many of its peers, can’t seem to figure out how to address its gargantuan scope 3 emissions.
As for the successive wallopings from investors, the board’s response has been to deny shareholders another vote on the company’s climate plan — a decision that elevates this beyond ‘just’ an issue of poor climate risk management, to one of poor corporate governance.
Investors concerned by these developments are not out of options, though. From the outset, the ‘Say on Climate’ mechanism contemplated an escalation from resolutions, through to the use of other rights available to shareholders, if company boards are inadequately responsive to shareholder concerns. One of these rights is to vote on directors up for re-election.
Globally, there is growing recognition that accountability for climate strategy must sit at board level. In recent months a number of major UK institutional investors have said they are ready and willing to vote against the directors of poor-climate performing companies, as has the sovereign wealth fund of Norway, NBIM. Locally, the Australian Council of Superannuation Investors (ACSI) policy that came into effect in 2022 foreshadows recommendations against company directors where a company “consistently fall[s] short of our expectations” across a range of climate related indicators.
Last month, along with Vision Super and Betashares, ACCR co-filed members’ statements with Woodside, articulating our concerns with the performance of the board and how this impacts our view on whether the three long-standing directors up for re-election at the upcoming AGM deserve their jobs. Woodside acknowledges that climate change is a “material strategic governance issue” - one overseen directly by the board with the support of its committees. We agree, and think investors should keep this in mind when they cast their votes.
In recent weeks, under pressure, the Woodside Chair, CEO and CFO have been doing the rounds of major investors. Investors should see this for the tactical interaction it is, and ask themselves if entreaties and appeasements in a private conversation hold up against Woodside’s record and its explicit intention to increase overall emissions in a world that is on the path to decarbonisation.
Heightened scrutiny from regulators looking to test superannuation funds' climate claims may provide further motivation for any funds considering their next steps; voting against directors is an objective and efficient way for investors to demonstrate the evolution in their engagement approach where previous tactics have proven ineffective, when measured against funds’ own climate goals.
In Australia, shareholders only get the opportunity to vote on each director’s tenure every three years. At this year’s AGM, Woodside’s shareholders have every reason to demonstrate what effective engagement looks like.