Following a lengthy dialog with APG and other major investors, the moment has arrived: Shell is going to set concrete climate targets and make part of the remuneration of its top executives dependent on achieving them. Jags Walia and Terhi Halme on holding companies to account.
‘What contribution are you making to solving the problem of climate change?’ This is the question that Jags Walia, senior portfolio manager at APG, raised at the shareholders’ meeting of oil and gas group Shell in 2015, and again the following year, shortly after 174 countries had signed the Paris Agreement. In the meantime intensive discussions had been held with Shell’s top executives. The company came forward with a long-term target of halving its carbon footprint by 2050. Although more ambitious than the targets of other oil and gas companies, this did not go far enough for APG and other major investors. They insisted that concrete climate targets should be set for the short and medium term and linked to remuneration so the company could actually be held to account. It was recently announced that Shell had listened to its institutional investors and would be introducing the requested measures from 2020.
Leaders and laggards
APG uses its 482 billion euros of invested capital (July 2018) on behalf of its pension funds – among which ABP and bpfBOUW- to exert an influence over companies and encourage them to take their responsibilities. This is referred to as engagement. ESG (environmental, social and governance) factors have been fully integrated into its investment policy: alongside risk, return and costs, for new and existing investments consideration is also given to aspects such as the environmental and social performance of companies. APG actively invests in companies that are leading the way in these areas and conducts probing discussions with the laggards, or ‘achterblijvers’, as they are known in Dutch. This Dutch word is even used by investment professionals in the US and Hong Kong, albeit with a heavy accent, chuckle Walia and Terhi Halme, senior sustainability specialist.
Does Shell’s decision represent a breakthrough in the area of engagement?
Jags Walia: ‘Absolutely. The questions raised at the shareholders’ meeting and the discussions with the management clearly served as a wake-up call. Shell was the first company in the oil and gas sector to set ambitious targets for its CO2 emissions and is now taking an extra step to realize these ambitions. They are also imposing their own standards on their suppliers and industry peers, which may prompt other parties to follow their example, as is already the case at Total. This generates momentum and that’s something we are pleased to see.’
Terhi Halme: ‘As APG we are keen to play a leading role with a responsible investment policy, on behalf of the pension funds that we work for. Certain sectors, such as tobacco and controversial arms manufacturers, are excluded. For all other categories we adopt an integrated approach: that means we don’t focus on risk and return alone and only then consider the ESG factors separately, like a layer of veneer on top. Our investment decisions are a combination of all factors. By investing in the leaders and putting pressure on the laggards, we can realize the returns that pension participants require and also reduce the risks of our investments. Shell is one example of that.’
Do companies listen sufficiently to what APG has to say?
Walia: ‘APG has 750 million euros invested in Shell. My mother-in-law, on the other hand, has invested just 150 euros. That means she has no way of influencing the company, but we do. The same goes for the other companies in which we invest. Over the past twelve years I have undertaken four engagement projects with companies and in the end they all listened to us, although sometimes it can take a while.’
What do you do if companies are not quick enough to act?
Halme: ‘We talk to various people, including management, within a company about a range of topics. These issues can be both financial in nature and related to social or environmental issues. If the management disagrees with your view, you look for other approaches. For example, we can ask to speak at the shareholders’ meeting, use our voting rights and work together with other investors to increase the pressure for change.’
As was the case with Shell’s Arctic oil drilling?
Walia: ‘Initially, the discussions we held with the then management concerning the risks, including a potential oil spill, did not go as we had hoped. When the current CEO, Ben van Beurden, took up his post, a constructive dialog developed. Nevertheless, we were still not given immediate access to the manager in charge of the Arctic project. To increase the pressure, we expressed our views at shareholders’ meetings and gave interviews. Three days later Shell invited us to join them on a trip to the Arctic. It was June and I was standing amidst the ice in my T-shirt.’
What were your impressions?
Walia: ‘I noticed that the local population was not anti-Shell, but were actually pro-Shell, because of the investments the company was making in infrastructure. The locals even held a prayer meeting on the drilling platform. I was also impressed by how quickly Shell would be able to respond to an oil spill: it would need just 12 to 24 hours, whereas it took BP four months to deal with the oil spill in the Gulf of Mexico. Nevertheless, I still had concerns, which I shared with the management upon my return. On September 24, 2015, at 7.30 a.m., Shell announced that it would be halting its drilling in Antarctica.’
NGOs often say that APG and other major investors should pull out of companies like Shell to force them to change.
Halme: ‘Divestment is hardly ever the most effective option. We want to bring about positive change, which is why we put so much energy into engagement.’
Walia: ‘If you simply sell your shares, you’ve done nothing to make the world a better place. You’re washing your hands of the issue. You also don’t know whether the buyer of these shares will make their voice heard. We see it as our responsibility to do just that. We need to earn money so that people have access to a decent pension later in life. But we need to do this in a responsible way to ensure that in future we still have a planet on which people can retire.’
Earlier this year you also spoke to Madonna Thunder Hawk, a tribal elder of the Lakota Sioux. She is waging a crusade against the construction of oil pipelines on American Indian land.
Walia: ‘It was one of the nicest meetings I’ve had in my career. Madonna believed that responsible investment is a binary choice: if you have concerns about a company’s behavior, you divest. If you stay, you evidently don’t care. We explained to her that there is also a third way: exerting an influence. We share her concerns and also asked her for her help: what are her and the local community’s experiences of the improvements that we agreed with the company behind the oil pipeline? We need independent sources, in addition to the management and NGOs. We can then go back to the company with this feedback.’
What is your personal motivation in carrying out this work?
Walia: ‘If you manage to exert an influence, as in the case of Shell, it feels really good. I have children and as a parent and a human I am concerned about the future.’
Halme: ‘My children give presentations on climate change at school and that affects you. I find it inspiring to seek out opportunities to invest in companies that act responsibly or to make a contribution to positive change. This personal commitment is a characteristic of every member of our team.’
On the left photo: Terhi Halme. On the right: Jags Walia.