Shell CEO Ben van Beurden speaking at the 2018 General Meeting

In an age in which stock trading is no longer reserved to Wall-Street and a climate crisis is becoming a reality, sustainability-driven shareholder activism was bound to happen.

And we see it happening, with increasing impact—especially in Big Oil, responsible for the largest share of the world’s greenhouse gas emissions.

Long has the traditional shareholder model of corporations been a source of criticism, especially from a sustainability perspective.

As the criticism goes, shareholders have no interest in the long-term health of a company, and most certainly not in anything that concerns the world outside the corporation—like the health of our planet and its population.

But, this may be changing. Paradoxically, it may be this very same traditional shareholder model that can be key to fight climate change, achieve COP26 ambitions, and realize UN’s Sustainable Development Goals.

I spoke to Mark van Baal, founder of activist shareholder group Follow This, to discuss the merits and perils of shareholder activism, in particular with respect to climate change and Big Oil.

How Follow This Fights The Battle Against Climate Change

In Van Baal’s words, Follow This is “a group of over 8,000 green shareholders in oil and gas companies.” Their goal?

“To get oil companies to set clear Scope 3 ambitions and targets. This means that they do not only take responsibility for their own emissions, also called Scope 1 and 2, but for all emissions in the value chain.

This includes emissions caused by the products made from oil, transport, and so on.

Since oil companies are not doing this on their own, they need an extra stimulus and support to get such ambitions and targets on the agenda to meet the Paris climate agreement.”

Their approach is as simple as it is effective. Their impact has already been made apparent at multiple Big Oil names, turning these corporations in the right direction when it comes to climate change.

“Thanks to the votes of institutional investors for the Follow This climate resolutions, Shell, Equinor, BP, Phillips 66, and Chevron have reluctantly set climate ambitions covering Scope 3 already.”

And, as Follow This announced in their recent investor briefing, they will file no less than eight climate resolutions in 2022, at Shell, BP, Chevron, ConocoPhillips, Phillips 66, Occidental Petroleum, ExxonMobil, and Marathon Petroleum.

In doing this, Follow This adopts a five-step approach along the “SATIE framework” that they developed.

Shareholders vote for emission reduction targets, crucially including Scope 3. Subsequently, companies set Ambitions covering Scope 3, advance these into Paris-consistent Targets that lead to Paris-consistent Investments, that result in absolute Emission reductions on a 1.5 degree Celsius pathway.

Over the past five years, Follow This has seen a rapid growth in the support for their resolutions. In 2016, they brought in their first resolution at one oil company, Shell, which obtained support of 2.7% of Shell’s shareholders.

Five years later, in 2021, this support has grown to 30%. And in this same year, promising results have also been achieved at BP (21%) and Equinor (39% of non-government votes). While still not a majority, this growing support for climate resolutions is too big to ignore.

As a result, according to Van Baal, these companies have set Scope 3 ambitions that would not have been there without votes for the climate resolutions of Follow This.

“But we’re not there yet. Not at all,” Van Baal adds, “so far, seven out of eight companies have set Scope 3 Ambitions. This is nice, but it only brings them to the second step of the SATIE framework. None of them has already set Paris-consistent Targets, made Paris-consistent Investments, or achieved Paris-consistent reductions in Emissions.”

On the contrary, “Recent studies show that while meeting the Paris agreement requires an absolute reduction in emissions of 45% by 2030 compared to 2010 levels, Shell’s and BP’s absolute emissions are expected to grow over the next years. And that’s of course not at all what our planet needs.”

Winning From Short-Term Shareholders

What applies to oil and greenhouse gasses, applies to other industries and other global problems as well. An example is Oxfam Novib, a Dutch NGO fighting poverty and inequality.

Following a similar approach as Follow This, they have bought a small amount of shares of Pfizer, Moderna and Johnson & Johnson to get a seat at the table and demand Big Pharma’s attention to the unequal distribution of Covid-19 vaccines.

While the effects of this are still to be seen, it shows how sustainability-driven shareholders are increasingly finding their way to big corporations and claim their seat on the table.

As both Follow This and Oxfam Novib point out, their approach works best in shareholder regimes that are normally criticized most for their short-term, profit-driven “shareholderism.” These are typically the Anglo-Saxon variants that we find in, for example, the U.S., the U.K., and Norway.

In these countries, the threshold for bringing in resolutions is low, while the influence of shareholders is significant. This combination makes them the ideal shareholder model for shareholder activism.

This works two ways, though. Also on the short-term, profit-oriented side, activist shareholders claim their role.

In the case of Shell, for example, hedge fund Third Point is urging Shell to breakup and split the company in two—one part focused on maximizing shareholder value based on oil, the other on other activities, most prominently Shell’s activities in Liquified Natural Gas (LNG), marketing and renewable energy.

As long as there is a sizeable group of investors with a primary interest in short-term profits, dividends and shareholder value, we can expect the shareholder model of public companies to remain a double-edged sword.

Van Baal is optimistic, though. The main reason is that “large institutional investors are increasingly aware that a strong emphasis on sustainability and the long-term value of a company go hand in hand.

They realize that, with its large effect on emissions and climate change, Big Oil is not only becoming a risky investment itself. It also impacts investments in other sectors such as insurance and real estate, due to the negative effect climate change has on these sectors.”

Along these lines, Follow This sees a year-by-year growing support for their resolutions by the largest institutional investors.

With this leverage, according to Van Baal, “it is only a matter of time before oil companies will be forced to further sharpen their targets and increase their investments in Scope 3 emission reductions.”

How To Become A Sustainable Shareholder

What works for Big Oil and climate change, and for Big Pharma and the uneven distribution of vaccines, can work for any of the Sustainable Development Goals.

It works especially well if a company’s long-term survival and value depend on achieving these goals. In such case, investors’ financial interests and sustainability goals align.

Although it requires persistency and a thick skin to go against the leadership of powerful corporations, the recipe for sustainable shareholdership is simple:

1. Pick the cause or sustainability problem you care most about.
2. Find the companies causing the most substantial part of the problem.
3. Clarify how investors’ long-term financial interests align with solving the problem.
4. Buy as many shares as needed to get a seat at the table—this can be as few as one.
5. Bring in your concerns at the annual shareholder meetings in the form of resolutions.
6. Stimulate others to buy shares and support your resolutions.

With these six steps in mind, anyone able to buy one or more shares of a public corporation can become a sustainable shareholder and use their position to push the company toward a more sustainable future. With Shell’s current stock price, it takes just $20 to become one.

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