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Shareholders urged to link executive pay at oil companies with climate change risks

UK investment campaign group ShareAction has urged investors to use the binding votes on remuneration policy at BP and Shell in 2017 to ensure the oil majors can demonstrate their commercial strategies are aligned with a move to a low carbon economy. In an investor briefing ShareAction said it believes shareholders should engage with the companies to ensure executive are incentivised to meet climate-aligned corporate goals and targets rather than being linked to a high carbon strategy, which rewards senior executives for replenishing fossil fuel reserves as at present.

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If the companies do not respond to this engagement ShareAction said investors should not support executive compensation structures that incentivise the pursuit of high-carbon strategies. Doing so would put shareholder value at risk under low-carbon future scenarios, including the ‘below two degrees’ goal agreed at the Paris climate summit last year, ShareAction said. Currently Remuneration at both companies is currently

Catherine Howarth, Chief Executive at ShareAction said, “Responsible investors who are serious about climate risk have a crucial opportunity to ‘walk the talk’ at BP and Shell next year, by pushing for remuneration policies designed make these major companies commercially resilient in a low carbon world – and voting down policies which fail that test.”

ShareAction’s briefing came as a report was published  by Australian finance activist group Market Forces which showed how fossil fuel companies in Australia are linking executive pay explicitly to the expansion of new oil, gas and coal reserves. Seven companies in the Australian Securities Index, as well as Chevron, BP and Exxon, have an ‘expansion’ bonus which incentivises risky projects such as drilling for oil in the Great Australian Bight.

The group’s research suggests that Australian pension funds have not been linking executive pay at these companies with climate change risk in respect of remuneration pay votes. The report indicates that several Australian funds have signed up to the United Nations Principles for Responsible Investment which calls for active ownership. The report suggests that not engaging on climate change risk with oil exploration companies is a failure of ownership by the funds.

Separately ShareAction has also published a briefing – in association with Access Now a group which defends and extends the digital rights of users at risk around the world – that warns investors in information and communication technology (ICT) companies that contribute to human rights violations through the restriction of internet services, that they face financial and reputational risks to their portfolios. ShareAction said in July 2016, the UN Human Rights Council passed a resolution which specifically condemned internet shutdowns as a barrier to human rights.

The briefing recommends that investors encourage companies to: appoint a board-level officer who is responsible for handling shutdown orders; establish a clear policy for responding to and documenting orders, including resisting; and improve transparency about human rights risks where companies operate and increase reporting on the orders.

What do you think?