Woodside Petroleum is an energy company listed on the ASX worth A$21 billion+. They held their AGM on the 30th of April 2020. Before the meeting, a group of activists called the Australasian Centre for Corporate Responsibility had proposed amendments to the company’s constitution. The details about this were in the AGM update document, including the full text of the ACCR resolutions.
These included the right to make non-binding resolutions at the AGM, better reporting and disclosure on company performance against Paris Agreement targets, no more reputation advertising and making sure industry lobby groups don’t try to water down the implementation of the Paris Agreement.
These proposals all sound reasonable, and in line with what shareholder activism looks like around the world. It’s become increasingly popular to target companies as investors on climate-change-related issues because of glacially slow global political action and change. However, the board of Woodside Petroleum argued against these four resolutions. On the day, they won, but the activists made a point, particularly with the revealed shareholder appetite for more detailed greenhouse gas emission reporting and targets.
Enabling non-binding shareholder resolutions
The first amendment to change the company’s constitution was quite measured. It would only relate to “an issue of material relevance to the company or the company’s business as identified by the company”. It would be advisory only and non-binding.
The board argued that this would “favour activist shareholders” and lead to activist shareholders “dominating” the business of future AGMs. They claimed that this would negatively impact the broader shareholder base and that the drafting of the proposed amendment would be hard to administer in practice.
I guess it’s unsurprising that the board would argue this as they didn’t believe the change was in the best interests of the company. They also indicated that there were existing avenues for shareholder engagement with Woodside – the AGMs, investor relations, company updates, company presentations and meetings with shareholders.
They say all these channels provide shareholders with an opportunity to make their views heard. They indicated a lot of this engagement over the past few years had been climate- change-related.
The ACCR argued that because of Australian legislation and its interpretation in case law, shareholders in Australia couldn’t put ordinary resolutions on the agenda at an AGM. They believe that this isn’t in the long term interests of shareholders and out of line with global best practice. But Australian institutional investors, in particular, do have a lot of engagement with management.
The ACCR highlighted how they intended to proceed with this amendment – a shareholder needs to propose a special resolution and win 75% of the vote to be able to make that special resolution. Hence they claim none have ever succeeded in Australia. Thus – they needed to win the first resolution for the other three to be put to the meeting. On the day they didn’t. The board recommended shareholders vote against the proposal.
At the AGM, 6.69% of votes were for the special resolution. 93.72% of votes were against it. It was an overwhelming defeat of the plan, and the following three proposals weren’t able to be voted on. However, the details of the proxy votes and direct votes made before the meeting were released, which helps us understand the sentiment of Woodside Petroleum shareholders towards these ACCR proposals at a granular level.
Improved Paris Goal and Greenhouse Gas reporting
The ACCR proposed annual reporting from FY21 on Scope 1, 2 and 3 emissions aligned with the Paris Goals. As a refresher, the Greenhouse Gas Protocol, which is a partnership between the World Resources Institute and the World Business Council for Sustainable Development, sets out measurement and reporting standards for greenhouse gas emissions.
Scope 1 emissions are direct greenhouse gases emitted by the company. Scope 2 emissions are indirect greenhouse gases from electricity consumed, and Scope 3 emissions are “value chain emissions” or the greenhouse gases of customers and suppliers. The Paris Goals are the net-zero carbon emissions by 2050 from the Paris Agreement.
The ACCR wanted a statement from the company on how capital expenditure on things like new natural gas projects aligned with the Paris Goals. It also wanted the company to explain how its remuneration framework incentivised progress against reducing Scope 1, 2 and 3 emissions.
The board acknowledged the material risks to its business from these issues. They noted that it was following some of the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) in the annual report. They referenced a report commissioned from ERM and peer-reviewed by CSIRO on the proposed Browse and Scarborough projects. That report claims an overall reduction in greenhouse gas emissions is possible because of the non-renewable energy sources LNG is competing against in the target export markets such as coal and oil for the output of those projects.
Woodside’s 2019 sustainable development report includes this chart showing sources of Scope 1 and 2 emissions adding up to 8.8 million tonnes of CO2 equivalent in 2019, as noted in the ACCR statements. They also highlight that Scope 3 emissions – the value chain emissions – are 27.9 million tonnes of CO2 equivalent in 2019, thus making up the vast proportion of Woodside Petroleum’s greenhouse gas emissions. Yet ACCR highlight that there’s no specific goal to reduce these in the medium-term, and they will increase as new projects come online.
The ACCR also highlight how the remuneration mix presents a contradiction between “materially sustainability issues” equal to 25% of the short-term incentive (STI) scorecard. Still, the other parts of the scorecard incentivise outcomes delivered through higher production levels that imply higher greenhouse gas emissions. They wanted this resolution passed to incentivise reduced greenhouse gas emissions at Woodside Petroleum.
On the day, this wasn’t put to the vote. But the disclosure of the proxy votes shows 50.16% were for the resolution and 49.83% against the resolution. This result is a massive signal from shareholders to Woodside Petroleum directors and management. There is a clear broad group of shareholders who want even more detailed reporting and disclosure on climate-change issues.
Climate-change lobbying and industry group membership
The proposal here was for Woodside Petroleum to review its “direct and indirect lobbying activities relating to climate, resources and energy”. The ACCR wanted a plan to stop any lobbying by industry bodies trying to water down the implementation of the Paris Goals and either leaving an industry association where this was happening or getting them to change how they operate to reflect shareholder expectations better.
The board pushed back hard here – they claim membership of industry groups generates a lot of value for shareholders and is about a lot more than climate-change issues. They disclose membership of organisations they’re part of and say they monitor their activities. Their recommendation was to vote against this proposal as they didn’t believe it was in the best interests of shareholders.
The board threw some shade at some of the ACCR claims. They even linked to a Guardian article where the Business Council of Australia argued for a legislative target of net-zero by 2050. However, the ACCR was asking for:
further disclosure on our company’s direct and indirect lobbying on climate and energy policy, in light of the failure of successive Australian governments to implement a policy designed to achieve the Paris goals.
They also reminded shareholders that Woodside Petroleum is a member of the Australian Industry Greenhouse Network, the Business Council of Australia, the Australian Petroleum Production and Exploration Network and the Chamber of Minerals and Energy of Western Australia.
To be fair to the board, it would be unusual and exceptional corporate behaviour for Woodside Petroleum not to be part of any industry lobby groups. For example, the BCA put out an interesting scoping paper on energy and climate-change impact in January. Globally on this issue, BP decided to leave a few industry groups it was part of earlier in 2020.
Industry associations do a lot more than just lobby against regulations. They’re an important part of communicating potential problems with a proposed law or regulatory change to politicians but also a forum to coordinate positive social impact activities across an industry.
For example, the Australian Banking Association has been doing a lot of good work in response to the COVID-19 crisis. There is a value proposition in the industry groups there for shareholders that the board and management will definitely understand.
The board recommended against the proposal and shareholders agreed, but not completely. 42.65% of the votes collected were for the recommendation and 57.34% against the proposal. That’s still a sizeable group of shareholders not entirely comfortable with this sort of activity, another strong signal to the board and management to monitor these activities closely and consider a review like BP.
No more reputation advertising?
This proposal seems to have been inspired by BP’s decision to stop reputation or brand-building advertising earlier in the year as part of a massive strategy shift to advocating for net-zero emissions.
But there are interesting questions at play – particularly the suggestion that Woodside Petroleum is bad for sponsoring Nippers in Western Australia. It’s a really interesting social impact question – what is the tradeoff between reputation advertising and supporting worthy causes in the community?
The ACCR claimed that because a good proportion of the reputation advertising at Woodside Petroleum targets young people, it has to stop. I’m sure any teachers taking their classes on a trip to an oil refinery would talk about the costs of climate change as compared to the benefits of oil and gas production at a 100:1 ratio.
The board argued that this resolution was a distraction because its activities already comply with the OECD Guidelines for Multinational Enterprises and didn’t think reputation advertising was specifically part of that.
They noted A$17 million a year in social spend in the community and said they’re transparent with what they do. They also claimed this particular resolution would negatively affect community groups and waste the company’s resources.
Shareholders agreed – this resolution attracted just 2.71% support meaning 97.28% of shareholders disagreed. This proposal was the biggest defeat of any of the ACCR’s recommendations which provides an insight into the relative concerns for ESG issues amongst Woodside Petroleum shareholders who voted at the AGM.
What next?
Overall, the outcome of the voting on these issues at the Woodside Petroleum AGM was a victory for the board. The activists demonstrated though that investors will demand more transparency and detailed reporting disclosures. There was a substantial vote for more disclosure in the future, and monitoring the next round of Woodside Petroleum reporting will be interesting to see if they disclose more to assuage any residual shareholder concerns.
There will also be higher levels of community expectations of large businesses in industries with high greenhouse gas emission. Overall, this AGM result highlights the need for political change at a national level if activists want standardised responses and outcomes from industries like oil & gas.
There are many corporate governance questions that emerge from a scenario like this - the board has a legal duty to act in the best interests of all shareholders and follow the rules and they have done so.
Perhaps their suggestion that the rules around company law and climate-change reporting could be the better target for activism has some merit, I’m not entirely convinced of that though as direct activism with a large company is often more efficient and the outcomes confirmed sooner.
Woodside Petroleum already discloses a lot of climate change-related information, the more they disclose, the more trust they will build with stakeholders and the more their greenhouse gas emissions can be reduced over time. This is definitely a company to watch.
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