Shareholder activism in the oil and gas sector involves shareholders using their Oil & Gas sector involves shareholders using their ownership stakes to influence organizations, often pushing for updates related to environmental sustainability, corporate governance, and financial performance. These activists, commonly hedge funds or institutional investors, have goals to improve the organization’s value and align its operations with their own goals.
Shareholder Activism in the Oil & Gas Sector
Shareholder activism in the oil and gas sector is an increasing trend with investors increasingly using their energy to influence corporate behavior, particularly concerning environmental, social, and governance (ESG) problems. This activism takes several forms involving filing climate-related shareholder resolutions, engaging in proxy battles, and advocating for updates in corporate strategy and governance.
What is shareholder activism in the Oil & Gas Industry?
Shareholders’ activism in the oil & gas sectors includes investors using their ownership stakes to influence the organization’s management and operations, particularly concerning environmental, social, and governance (ESG) issues. This can involve pushing for changes in company strategies, investments, and corporate governance to improve the company’s performance on sustainability, social responsibility, and financial returns.
1. Active management
Unlike passive investors who easily hold shares and collect dividends, activist shareholders actively engage with organizations to push for specific updates.
2. Learning the Ownership Rights
They utilize their ownership, such as voting at shareholders’ meetings, proposing resolutions or engaging in commitments with management to influence the organization’s direction.
3. Focusing on ESG
The significant aspect of shareholders’ activism in the oil or gas industry revolves around environmental concerns, particularly around climate change and sustainability. The activist may push for decreasing carbon emissions, investments in renewable energy, and improved disclosure of climate-related risks.
4. Looking at Value Creations
While ESG is a significant focus, shareholders’ activism ultimately aims to improve the organization’s long-term value for climate-related challenges.
Impact of Shareholder Activism in Oil & Gas Sectors
The shareholder activism in the oil or gas sector is boosting, driven by concerns about climate change and the desire to verify ESG practices. Activist investors are promoting updates like decreasing carbon emissions, boosting investment in renewable power, and improving corporate governance.
As these actions can lead to major shifts in corporate methods, involving divestment from fossil fuel assets and ideal focus on sustainability. There is some more information about the impacts given below:
1. Boosting Focus on ESG
- Shareholder activism is the key driver for companies to verify their ESG performance.
- This can lead to updates in corporate methods, like setting the emissions reduction targets and investing in renewable energy.
- For instance, the activist investors have successfully promoted climate-related proposals at annual meetings, outcomes in negotiated agreements between the boards and investors.
- The investors are pressuring organizations to address the climate crisis, human rights, and diversity problems.
2. Boost Corporate Governance
- The activist investors often look to improve corporate governance, involving a boost in transparency and accountability.
- This can lead to more responsible and efficient management of the organization.
- For instance, the activist may appeal to increase the seats on the board of directors to directly influence judgment.
- They may push for updates and changes in the board composition, executive compensation, and other areas related to corporate judgment.
3. Divestments and Power Transitions
- Shareholders’ activism is a significant force behind the push for divestment from fossil fuels.
- This can include the selling of underperforming assets and moving the organization’s focus towards renewable energy.
- For example, some activist investors have targeted oil and gas organizations intending to transform them to a more sustainable business level.
- Investors are pressuring organizations to decrease their reliance on fossil fuels and invest in cleaner energy sources.
4. Potential for Increased Shareholders’ Value
- However, it is essential to analyze the proposed change carefully, and it may not always lead to desired outcomes.
- While some proposed changes may be controversial, activist investors can also drive positive updates that increase shareholder value.
- For instance, if an activist investor successfully pushes for the organization to adopt a more sustainable company model, this could attract new investors and boost the company’s overall value.
5. Most Employed by the Activist Investors
- Duplicate Voting: The activists can use their voting authority to influence corporate judgment.
- Public Campaigns: The advocate may produce public campaigns to raise attention and pressure organizations to update.
- Private Negotiations: The advocate can engage in private negotiations with management to advocate for updates.
- Building Coalitions: The activist may build coalitions with others to boost their influence.
Challenges of Shareholder Activism in the Oil & Gas Sector
Shareholders advocating in the oil and gas industry face several risks involving the inherent financial focus of the sector, resistance from the organizations, and the complexity of energy transitions. While activism can promote positive updates, such as verifying the ESG practices, it also carries risks related to ethical and legal concerns, especially with aggressive strategies.
1. Organizational Resistance
- Some organizations have been accused of greenwashing, where they publicly guarantee sustainability goals but fail to implement meaningful updates.
- For instance, ExxonMobil has been known to protest against climate resolutions and even sued to avoid voting on them.
- Oil or gas organizations have shown resistance to shareholder requirements, involving attempts to block climate-related resolutions and avoid voting on them.
2. Complexity of Energy Transition
- The transition to a low-carbon economy needs major capital investment and technological innovation, which can be a risk for established oil and gas organizations.
- They are required to balance the requirements of shareholders with the long-term strategic goals of the organization and broader societal requirements to address climate change.
- Focusing on the complexities of power transition while addressing the shareholders’ requirements, carefully planning, and readiness to adjust.
