INVESTORS are “at a crossroads” in terms of how they engage with oil and gas companies to ensure that they transition to net zero carbon emissions, the chief responsible-investment officer at the Church of England Pensions Board, Adam Matthews, has said.
In an interview on Tuesday, Mr Matthews said that the Pensions Board was “deeply unhappy” with Shell’s recent strategy, which, he said, “pulled back from the progress that had been made”.
Mr Matthews was speaking in advance of the release of the Pension Board’s stewardship report for 2022, which lays out the Board’s “impactful investment” strategy for the assets it holds.
The report shows that the value of returns on the Pensions Board’s £3.2 billion holdings had decreased by 13.2 per cent in 2022; in 2021, the overall value of its assets under management was £3.7 billion.
Roughly one quarter of the asserts are invested in public equities. One of the smallest categories of holdings is debt in “emerging markets”, in which the Pensions Board hold £76 million, but the report notes that the Board invests further funds in developing economies across different asset classes, and is chairing a group of UK pension funds looking to invest further in this area (News, 27 May 2022)
In November last year, the Board published draft guiding principles on such investing (News, 18 November 2022) and in the stewardship report, repeats its request for consultation on these principles.
On Tuesday, Mr Matthews highlighted this work, saying that supporting the transition to net zero in developing economies required specific investment.
The report also records that the Pensions Board voted in 96.5 per cent of the shareholder ballots in 2022, and dissented from company management recommendations in 17 per cent of votes.
At Shell’s AGM last month, the Pensions Board, which invests in the company, voted against the re-election of Shell’s directors, and supported a resolution put forward by the campaigning group Follow This, to require Shell to cut emissions drastically by 2030. Neither the resolution nor the move against the current directors won more than 20 per cent of votes at the meeting, delayed when protesters stormed the platform (News, 26 May).
“There is very clear evidence of progress that companies have made over the past five years, following the very intensive engagement there’s been from investors through initiatives like Climate Action 100, and through the work that we’ve been leading amongst other investors,” Mr Matthews said.
In 2021, the Pensions Board backed Shell’s energy transition plan, describing it as “the first phase of Shell’s transition over this crucial decade” (News, 21 May 2021).
The war in Ukraine, however, created a mandate for reducing reliance on Russian oil and gas, which meant that companies had to make some short-term “adjustments”, Mr Matthews said. There were worrying signs that this would continue, leading to further deviation from the pathway of a transition towards net zero.
In a comment piece for The Daily Telegraph last month, Mr Matthews wrote that “this shift means Shell is moving away from being an actor seeking to positively shape the future in favour of the transition.”
Asked on Tuesday whether this meant that it was time for the Pensions Board to sell its shares in Shell, as it has been urged to do by climate campaigners (News, 24 November 2022; News, 25 February 2022), Mr Matthews said that investors were “at a crossroads” in how they could “continue to engage with the sector”.
He pointed to the fact that the Pensions Board had reduced its holding in oil and gas companies, working only with European energy firms “that had been making progress”.
Questioned about the worth of supporting resolutions at AGMs which had little chance of securing wide support among shareholders, Mr Matthews said that he thought that such meetings were “a hugely important part of corporate governance and accountability: it is a democratic element, in a sense, among shareholders of companies, and it’s a way to indicate and hold boards accountable, but also indicate expectations for boards”.
In an introduction to the Pensions Board’s stewardship report, the chair of the trustees, Clive Mather, writes: “We believe members should be able to retire well, confident that their pension funds are invested and stewarded in ways that secure their pensions and help create a more fair and sustainable future.”
On Tuesday, Mr Matthews was clear that the ethical and financial goals of the Pensions Board were in alignment. “As a long-term institutional investor, we’ve got to invest over decades,” he said, and reverting to short-term targets, as Shell was doing, meant that “it’s more likely that we’re going to have a transition that is going to be disorderly, and that, in turn, is going to be a much harder territory to invest in.”
Mr Matthews was speaking from South Africa, where he is visiting mine sites. “We’ve spent a lot of time really considering what are the challenges that the mining sector faces, and recognizing that society demands a lot of what the mining sector produces.
“We really want to ensure that we are active and invested in the sector, and can work with other investors to drive the kind of change we want to see.”
He paid tribute to the work of the Archbishop of Cape Town, Dr Thabo Makgoba.
“Archbishop Thabo has been leading in South Africa, where’s been convening the companies, the unions, civil society, and government as well, to have very honest conversations about how you really drive the change the sector needs,” Mr Matthews said.
Commenting on the release of the report, Mr Matthews encouraged members who hold pensions to provide feedback on Pension Board’s strategies.
The production of a stewardship report for the Financial Report Council was a compliance obligation, he explained, but the Pensions Board hoped that the final report was written in a way that was accessible to a general readership.
“I spend quite a bit of time talking to clergy members, and I’m happy to do that because ultimately we’re doing it on their behalf,” Mr Matthews said.