Published on 08 July 2019

SUSTAINABLE FINANCE

Shareholder Engagement Demonstrates Its Impact On Company Transformation In The Oil And Gas Sector

Investor coalitions are putting in place specific methodologies to question companies on their social responsibility. The Transition Pathway Initiative (TPI) and the Dutch NN Investment Partners explained the results they obtained from companies like Shell, BP and Tesla at Novethic’s 2019 Positive Investors Forum.

Tesla is a company with known for positive impact, but due to lack of transparency, is poorly rated.
@Tesla

A Non-Governmental Organization’s report often comes as a shock. When Influence Map released a report indicating that oil and gas companies are spending $200 billion a year on climate lobbying, engaged investors quickly responded. "It's a bit naive, but a lot of people had forgotten about lobbying," says Faryda Lindeman, NN Investment Partners' Responsible Investment Specialist. "We had to open our eyes, we had to act," Lindeman added.

Investors have begun to demand more transparency from companies about their membership in lobbying organizations. And with much success. "Shell was the first to publish a report on the issue, says Lindeman, and car manufacturers have followed suit." The Transition Pathway Initiative have also decided to add two new indicators to its scoring methodology on lobbying.

Transition Pathway Initiative (TPI) is a recent organization, but one that is already showing results. Created in 2017 and supported by 45 investors representing $14 trillion in assets under management, they have developed a precise methodology to refine shareholder engagement techniques. "We developed it with the London School of Economics, to map companies along two directions: quality management and carbon performance," says Nadine Viel Lamare, Director of TPI.

An effective method

In all, the analysts of the initiative observed 70 key indicators, making it possible to score the companies in the two directions from 0 to 4, from the least engaged to the most engaged. For example, the top performing companies have set quantified targets for reducing greenhouse gas emissions, integrated environmental, social and governance (ESG) issues into the calculation of managers' compensation, and incorporated the risks and opportunities from climate change in their strategy.

"We can compare the ratings of companies and it's very effective," says Lamare, "companies are wondering why they are less rated than others!" These notes serve as a means for dialogue with companies. Tesla, supposedly aware of climate change challenges, published no figures and no information on the subject. They have since started to produce reports and  communicate with us," affirms Lamare.

Such was the case for BP, the oil company with which TPI inaugurated its methodology. At the time, the oil giant had no public climate objectives, so they had the worst rating possible. But the dialogue between the coalition of investors and BP has worked. "Guess what? Two years later, they received a rating of 4", exclaimed Lamare.

Arnaud Dumas @ADumas5


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