Shell can’t get away from activist investors
What’s going on at Shell? Activist investors are now threatening the positions of the company chair and some of the oil giant’s board members.
In some ways, the protests by the activists are nothing new for the oil giant. It has had to deal with pressure from activist investors (people who buy enough stake in a company to be able to force a governance change) for a while.
Even though the company has committed to making positive climate-related and ESG changes, activists say it isn’t enough.
It means the company is now at a crossroads. Shareholders can choose between bolder, activist climate goals and more modest company plans, which may yield larger profits in the short term.
What’s going on at Shell? What’s at stake?
It boils down to a few crucial motions at the AGM next week:
- The reappointment of Shell chair Andrew Mackenzie and board directors. Shell supports this – obviously. Key investors such as the Church of England Pension Board and Proxy advisor PIRC oppose it.
- Shell’s annual report. PIRC want shareholders to vote against it because its climate commitments aren’t strong enough. Shell supports the report.
- A shareholder resolution from activist investor group Follow This calling for tougher, broader climate targets. The CofE fund supports it. Shell opposes it, as does proxy advisory firm Institutional Shareholder Services (ISS), which is known to have significant sway over votes.
So it’s a battle over whether to embrace climate goals or not?
Not really. Shell has already committed itself to some climate goals. It’s just a question of how big those goals will be.
Activist investors are sure they want the company to align fully with Paris Accord commitments, including tracking and reducing “indirect” third-party emissions.
Other shareholders – and the company’s leadership – are less certain.
The issue is not “should we jump?”; it’s “how high?”
Climate commitments – like all things ESG – can get detailed quickly. It is among these finer details that genuine discussions are held. It’s also where a careful balance needs to be struck.
Recently, Shell announced bold commitments to reduce oil output. Now, CEO Wael Sawan says the company will review those plans. It carried hints of a suggestion that the plans may be watered down a little.
Critics say it is because Shell is back to focusing on short-term profit rather than long-term sustainability.
While Shell maintains that its “net-zero by 2050” target is still in place, current backlash still raises doubts about its sincerity.
Will the activist pressure succeed?
It’s hard to give a definite answer about this. Success is a spectrum when it comes to activist investors. Some goals might be accomplished, some might just see progress, and some could be abandoned.
In 2022, the company faced a similarly hostile environment – with protest votes and pressure to change. Shell’s board members have faced lawsuits in the previous few months.
If Shell’s current leaders and shareholders are unwilling to vote in line with activist demands, they should have a plan for managing activist pressure moving forward.