Members warn schemes against waving through remuneration policies that focus on short-term production
Pension schemes have been urged to reject remuneration proposals at the UK’s biggest energy firms that campaigners say are ‘misaligned with the interests of long-term shareholders’.
BP and Shell face binding votes on three-year pay policies at annual general meetings (AGMs) on 17 and 23 May respectively.
Campaign groups ShareAction and Client Earth say the proposals incentivise management to focus on bringing more oil and gas to market rather than preparing the firms for a low carbon economy.
The two groups have supported pension fund members in writing to schemes with more than £2trn in assets including NEST, Aviva, Standard Life, Zurich, HSBC, The Pensions Trust, USS and Aegon to urge them to take action.
Prudent trustees must act in their members’ long-term best interests
Catherine Howarth, chief executive of ShareAction, said: “Prudent trustees must act in their members’ long-term best interests, and this includes saying no to executive pay proposals in the oil and gas sector that incentivise short-term production.
“Savers are increasingly alert to the financial risks of climate change and its mismanagement by high carbon companies. They are right to demand close attention by their fiduciaries to these factors.”
The letters sent by scheme members point to a strong body of evidence showing that climate change poses material financial risks to pension fund investments and, as such, should be taken into account by trustees as part of that duty.
They point out that trustees, or other fiduciaries, could be liable if their schemes fail to engage with their equity managers on these votes.
For many UK pension schemes using index tracking equity products, Shell is their biggest single holding, as the company has the largest market cap weighting in the FTSE index, with BP not far behind.
This is the first time in three years that investors in either firm have a binding vote on executive pay.
Following a major rebellion at BP’s AGM last year on its advisory pay vote, there has been significant engagement between shareholders and the company’s remuneration committee resulting in lower packages.
But ShareAction said both companies were highly vulnerable to the growing threat of low-cost green energy, and executives should be rewarded for successfully navigating this challenge, rather than for ignoring it.
If the pay policies are approved, they will be in place until 2020, the latest year by which global emissions must peak to maintain a high probability of global warming remaining below 1.5°C, the target identified in the Paris Agreement on climate change in 2015.
We’ll be watching how pension funds vote on these remuneration policies, and will be ready to take action where necessary
Natalie Smith, pensions lawyer at ClientEarth, said: “ClientEarth is supporting these members to make full use of the law to protect their rights. We’ll be watching how pension funds vote on these remuneration policies, and will be ready to take action where necessary.”
Alban Thurston, a pension saver with Zurich and Aviva added: “It’s a dangerous neglect of fiduciary duty for pension providers to rubber-stamp pay policies which egregiously reward oil executives for delivering strategies that put our pension savings at risk.
“That’s why I’ve written to my pension provider, requesting they vote against these remuneration proposals.”