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L&G: why oil giants must be forced to change

Sonja Laud, CIO, Legal and General Investment Management

by Sonja Laud, CIO, Legal and General Investment Management

Institutional investors are dramatically increasing pressure on global energy giants because of their inadequate record on sustainability.

In one 24 hour period this week, three oil giants were forced to confront publicly the scale of public disquiet about what they do and how they make their money.

• Exxon faced an AGM backlash from big institutional investors. They demanded a more diverse board membership that will ensure the new realities of sustainability are embraced.

• A Dutch court ordered Shell to cut its carbon footprint by 45% this decade. The hydrocarbon giant was found guilty of not doing enough to uphold human rights and the goals of the 2015 Paris climate agreement.

• Chevron felt significant AGM pressure from a majority of shareholders who demanded a huge reduction in Scope 3 emissions. What is the dramatic new driver for institutional investors?

This is a lightly edited transcript of what Sonja Laud, Chief Investment Officer at Legal & General Investment Management, told the BBC’s Today programme on 26 May 2021. Why were L&G determined to get change on the Exxon board?

SL: It is worth highlighting how the Exxon voting is fitting into our overall climate engagement programme. We do have a framework in place that is long standing: it is the Climate Impact Pledge.

It is a principles-based approach to deliver best practice and high standards. We are focusing on one thousand of the largest companies with really tangible voting and potential divestment sanctions if we feel that companies are not doing enough.

Pushing leaders and laggards to change

I don’t think I need to explain why we need to do this and the urgency around having proper climate targets. But it’s fair to say that we are pushing both leaders and laggards to do more. As such it was within that Climate Impact Pledge that the assessment of Exxon has been done.

Most importantly, it is obviously all about engagement, right? It’s not just identifying issues, It’s engaging with a company to make sure that appropriate measures are taken, and positive changes effected.

In Exxon’s case we feel that board refreshment - and this is exactly what investor Engine Number One [the small hedge fund] is aiming for - is needed.

New challenge needed

Obviously the proposed new board members have experience and skills that we think actually would provide the right level of challenge and actually the right level of experience. As such, we are supportive.

BBC Presenter: I think it’s fair to say that Exxon in the past - of all the oil majors - has been pretty sniffy and dismissive about investors concerns on climate change for a long time.

SL: Yes, that is that is fair to say. And clearly under the Trump administration we know obviously they’ve taken the US out of the Paris accord which the Biden administration now has rectified. So we are seeing obviously, a much broader focus now in the US on climate change.

It’s fair to say that a lot of companies in the US have tackled this. But you will not be surprised to hear that across the oil sector there’s still a broad spectrum ranging from some having no disclosure on their total carbon footprint to some having a full net zero target embedded across in all their products. This is why we are focusing on a broad range. We want to make sure that we do understand the global problem statement, and that we have an answer. Because we want to compare oil companies to oil companies and not to anyone else.

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