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Welcome back.
The price of North Sea oil for immediate delivery hit a record high yesterday, as European and Asian refineries struggle to replace blocked shipments from the Gulf.
The ongoing energy market turmoil looks likely to strengthen global efforts to shed reliance on fossil fuels. Even before the current crisis, the International Energy Agency had projected global oil demand entering a long-term decline by the end of this decade, in a scenario based on the current policy and investment “direction of travel”.
If fossil fuel demand does start heading south, how will big oil companies respond? So far they’ve been rather reticent on that subject. Will shareholder pressure force them to start taking it more seriously?
BP shareholder stand-off highlights strategic risks
Perhaps it was inevitable that BP would take some lessons from its rival ExxonMobil.
During the green-minded leadership of Bernard Looney, from early 2020 to late 2023, BP’s share price performance was by far the weakest among the world’s major private-sector oil and gas companies, while Exxon topped the class.
As BP seeks to appease restive investors, it’s been moving closer to its larger US peer’s seemingly winning strategy, tightly focused on fossil fuels rather than the low-carbon energy Looney once hailed as BP’s future.
It’s taken an axe to its ambitious clean power plans, incurring multi-billion-dollar writedowns on “transition businesses” including renewable energy. It’s abandoned a plan to reduce oil and gas production, ushering in an Exxon-style programme of aggressive exploration and development.
But with its latest move from the Exxon playbook — slapping down an unwelcome climate-related shareholder proposal — BP may have overstepped the mark.
Rejected resolution
The proposal came from Follow This, a Dutch non-profit group that has long been a thorn in the side of Big Oil, taking stakes in companies to file climate-linked proposals at their shareholder meetings.
Together with more than 20 institutional investors with total assets exceeding $1tn, it submitted resolutions at both BP and Shell, asking them to publish plans for how they would respond to a scenario of declining global oil and gas demand if the shift to low-carbon energy accelerates.
Shell agreed to let its shareholders vote on the proposal at its annual meeting. BP refused.
“The board, having taken legal advice, concluded that the proposal from Follow This was not valid and would be ineffective were it to pass,” BP chair Albert Manifold said in a statement on the company website. He said the board would allow “all legally valid resolutions which are properly requisitioned” to be put to shareholders — but did not give details of why it considered this one invalid.
BP told me that Follow This and its co-filers had failed “to specify that their resolution should be tabled as a special resolution”, which it said was a legal requirement. It also said the proposed resolution did not meet the requirement of being “directive or mandatory”, though it did not give further specifics on this point.
Follow This founder Mark van Baal called the decision groundless. “I can only guess what they’re thinking,” he told me, “but it appears they don’t want to answer the question: ‘How do we create shareholder value in a declining market?’”
‘Questions about transparency’
In fairness to BP, it’s stopped short of the confrontational “lawfare” approach taken by Exxon, which sued Follow This and investment firm Arjuna Capital to force them to stop filing climate-related resolutions against it. Exxon’s heavy-handed tactics helped ensure that its annual meeting last year didn’t feature a single shareholder-filed proposal, for the first time since 1958.
But Exxon’s pushback against activist shareholders has the advantage of being supported by the US Securities and Exchange Commission. Under its Donald Trump-appointed chair Paul Atkins, the regulator has been moving to limit the scope for intervention by outside investors.
Last September the SEC approved an Exxon proposal of a new opt-in system for retail investors, under which their shares would automatically be voted in favour of the board’s recommendations. In November it said companies would now be able to exclude shareholder-filed proposals from their annual meetings without seeking SEC approval, which had previously been required for such exclusions.
On the other side of the Atlantic, BP now finds itself in an uncomfortable situation. UK asset manager L&G, its sixth-biggest outside shareholder, has said it will vote against Manifold’s re-election as chair due to concerns about the exclusion of the Follow This proposal.
Glass Lewis — one of the two dominant proxy advisers that help institutional investors decide how to vote — has recommended that other shareholders do the same at the meeting on April 23. The company had provided “limited explanation of the proposal’s deficiencies or the legal reasoning behind its exclusion,” it wrote, warning that the decision “raises questions about transparency, shareholder communication, and responsiveness to shareholder concerns”.
Yesterday the UK’s Local Authority Pension Fund Forum said it would also recommend its member bodies, who hold combined assets of over £425bn, to vote against Manifold’s re-election.
Uncertain outlook
Van Baal is now weighing up legal action, hoping to force BP to put this proposal to a shareholder vote at a future meeting. Even if that does happen, a positive result is far from certain.
While some previous climate-related resolutions at the company passed with overwhelming support, US asset managers such as BlackRock — BP’s biggest external shareholder with a 9 per cent stake — have shown far less enthusiasm for them in the past few years, particularly since Trump returned to office railing against the green “scam”.
As oil and gas companies rake in profits from elevated prices amid Middle East upheaval, van Baal’s fixation on a future structural decline in fossil fuel revenues may seem quixotic. But it’s perfectly plausible according to the International Energy Agency. In its annual outlook report last November, the central Stated Policies Scenario — based on its assessment of countries’ current “direction of travel” in energy policy — showed oil demand entering a long-term decline by 2030, and gas consumption following suit around 2035.
As I and others have written, there are signs that the current energy market turmoil may further speed the shift away from fossil fuels, with governments of major economies pledging to respond by strengthening investment in alternative energy. China’s electric vehicle and plug-in hybrid exports last month were 140 per cent higher than a year earlier.
BP may not be forced by its shareholders to draw up a plan for how it would deal with falling oil and gas demand. Exxon certainly won’t be made to do so any time soon. But they might still need to grapple with that problem much sooner than they’d like.
