Woodside Energy: a Shareholder Activism Milestone
Written by Integrum ESG Analyst Neha Kandwal
For most people, the 24th of April 2024 may have been a day like any other, but for some, it marked a landmark event in the history of shareholder engagement. Engagement is the third most prevalent ESG strategy tailing behind ESG integration and negative screening. Despite being considered a ‘softer’ strategy it is highly impactful, as evident here.
A few months ago, HESTA (the superannuation fund for health employees in Australia) began exerting pressure on Woodside Energy, a company in which it has <1% ownership, to improve its’ board’s climate credentials.
HESTA proposed candidates to become directors with the relevant skills needed to steer the company’s climate strategy in the right direction. Following continued and prolonged engagement with the company, HESTA took the public engagement route and deemed an ‘escalation of engagement’ approach fit to highlight their demand to change board members. The fund even put Woodside on a ‘watchlist’ and threatened to divest if the company did not improve its emissions reductions and climate strategy.
Shareholders of Woodside also raised concerns about the company’s growth-oriented strategy, its serious misalignment with the Paris Agreement, and excessive reliance on offsets to achieve its emission reduction targets.
This incessant criticism of the board’s climate credibility and its growth-oriented strategy has led to the company’s share price falling by a quarter in the past eight months.
In response to this criticism and to exhibit the company’s action on shareholder engagement, Woodside put its climate disclosures to a non-binding vote of shareholders at this year’s AGM on the 24th of April which resulted in a majority (58%) of shareholders, including influential pension funds and asset managers, rejecting it. Even the remuneration report got a 20% protest vote as its remuneration structure is inconsistent with the objective of the company’s Climate Policy. The Chair, however, managed to get re-elected despite severe criticism regarding his leadership.
The question arises as to why Woodside Energy’s board was subjected to such intense scrutiny, and to what extent can their investors influence the company’s board.
To understand this, we need to first look at the features of Australian boards in general and then compare this with Woodside’s board.
What does a typical board look like in Australia?
- Australia has a single-tier board structure, with just a single executive director (often called the managing director instead of, or as well as, CEO)
- The CEO is typically not subject to election by shareholders, who vote on the appointment of the non-executive directors annually
- Most companies still hold director elections every three years rather than annually
- Investors hold a strong level of influence on companies, as can be seen in the case of Rio Tinto in 2020
What does Woodside Energy’s board (specifically the Sustainability Committee) look like?
- The chair is elected every three years
- The present Chair, Richard Goyder was re-elected for a third time at the 2024 AGM
- Up until January 2024, none of the 7 sustainability committee members, including the chair, had any background in or experience with sustainability-related matters
- This is contrary to the company’s own , which states that it is a requirement that “at least one member [must possess] relevant skills, experience or qualifications in sustainability-related matters”
- This was only rectified in January of this year, with Ashok Belani’s appointment to the Board
Fig: An excerpt reflecting Woodside’s understanding of its board skills as stated in its Climate Transition Action Plan 2023
A company’s investors’ ability to provide “active ownership” and “stewardship” is a key mechanism within Australian Corporate Governance. The primary focus of this mechanism is not to shame companies by highlighting the deficiencies within the company’s structure, just for the sake of shaming them; investors will only act with the intention of safeguarding the long term value of the company.
Woodside failed to follow their own self-imposed requirements regarding the skills and expertise expected to be found in its board of directors (especially the sustainability committee), a failure which led to a value action gap reflected in the company’s decarbonization strategy. This is the primary reason why investors felt they had no other choice but to step in and put the company through a ‘trial by fire’ with respect to their climate disclosure.
Conclusion
In my view, while ‘active ownership’ and stewardship are critical to maintaining the dynamics between the company and its investors, it also could lead to conflicts of interest and issues regarding confidentiality.
Having said that, it will be interesting to see how the newly appointed director, one with experience in ‘new energy’ and a former Labor party treasurer who is known for having ‘under-taxed’ the WA hydrocarbons industry, will interact with the other directors on the committee and what influence he will have.
Previously when the company received a record shareholder rejection vote to its climate action plan in 2022, Woodside revised its action plan and even included scope 3 emissions in its target scope. This indicates that historically Woodside has been responsive to engagement and willing to take some action, however small that may be.
This case serves as a lesson for other companies to stay ahead of their investor’s expectations to avoid share price volatility, questions on the company’s credibility and even possible divestment.
The energy transition may be shaped by the precedent it sets for how investors and super funds might persuade businesses to take climate action.
Sources
https://www.msn.com/en-au/money/news/woodside-defends-honest-response-to-climate-change/ar-BB1lGhBY