FILE: Oil drums containing lubricant oil sit on a conveyor belt as they are prepared for shipping at the Royal Dutch Shell Plc lubricants blending plant in Torzhok, Russia, on Wednesday, Feb. 7, 2018. All eyes are on this weekend’s G-20 summit in Argentina, where Russia’s Vladimir Putin and Saudi Arabia’s Mohammed bin Salman are likely to discuss how to coordinate oil policy. The nations are in talks over the timing of any reduction in supply, Reuters reported Thursday, a week before producers are due to meet in Vienna to discuss the market and a possible cut in 2019. Photographer: Andrey Rudakov/Bloomberg
Shell is leaving a large US oil industry group following differences over climate policy © Bloomberg
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As the blades of a wind turbine turn gently against the clouds, the words “The greatest push for renewable energy the world has ever seen” appear on the screen.

The 2018 advert by Royal Dutch Shell reflects the ambitions of one of the world’s biggest oil and gas groups to diversify away from fossil fuels and into areas such as clean energy.

As is often the case, however, advertising tells only part of the story.

A few years ago it was climate activists and some consumers who would ask whether a company’s public statements on the environment were consistent with its lobbying on regulation in private. Now, some of the world’s biggest investors are homing in on potential disparities between companies’ public support for efforts to address climate change and their simultaneous membership of industry groups that oppose such policies.

“We ask boards to assess their memberships and take into account misalignments,” says Carola van Lamoen, head of active ownership at Robeco, an asset manager. In other words, are they consistent in their actions?

Since 2015, the Dutch investor has asked companies in the oil, gas and automotive sectors to declare memberships of industry groups such as trade associations, and quizzed them on what they spend on lobbying. “Sometimes it’s not very clear for investors and other stakeholders what memberships exist,” Ms van Lamoen says.

For its part, Shell last month announced that it was leaving one of the largest US oil industry groups because of differences over climate policy. Shell will not renew its membership of American Fuel & Petrochemical Manufacturers from next year, in part because of the group’s opposition to a carbon tax or other policies aimed at tackling greenhouse gas emissions.

Susana Penarrubia, head of environmental, social and governance (ESG) integration at German fund manager DWS, says it too has questioned companies on their lobbying activities and plans to step this up for fossil fuel companies. “I am concerned,” she explains.

The 2015 Paris climate agreement, which aims to limit global temperature rises to below 2C from pre-industrial levels, along with other initiatives that push for more disclosure on climate risks, have placed the topic firmly on the agenda for investors.

Union Investment, the €323bn German asset manager, was among a group of European investors that last month wrote to 56 companies, asking them how they work with trade associations on ESG issues.

This followed a move by a group of investors with total assets of $2tn, led by the Church of England Pensions Board and Swedish pension fund AP7, which in October wrote to 55 European companies challenging them on their seemingly inconsistent approach to climate lobbying.

The letter, whose signatories included Legal & General Investment Management and Robeco, called on them to review the positions adopted by trade associations and other organisations of which they are members, and ask whether they run counter to their own pledges to act on climate risk.

Two months later, another coalition of investors pressed European power companies to “ensure that their trade associations are aligned” with the goals of the Paris agreement, as part of a broader push to end coal use by 2030.

Shell had promised to review its membership of business groups after pressure from investors. The oil major assessed how closely 19 industry organisations were aligned with its policy goals, including support for the Paris agreement and a government-led mechanism to put a price on carbon emissions.

It said it was satisfied with nine of those groups but there was “some misalignment” with others, including the American Chemistry Council and FuelsEurope.

“This review is a first step towards greater transparency around our activities with industry associations on the topic of climate change,” Shell said in a statement in April.

Other oil groups are expected to follow. “This is the best practice in the oil and gas industry,” says Ms van Lamoen. “Other companies are certainly looking at what’s been done here. We expect more to come.”

An encouraging sign for investors was the promise earlier this year by miner Glencore to review its membership of trade associations to ensure they do not undermine the Paris agreement.

Investors continue to believe that engagement with governments remains an important part of companies’ corporate strategy.

Ian Simm, chief executive at sustainable investment specialist Impax Asset Management, says that while lobbying often has pejorative connotations, “it’s not all about the negative side”. He notes: “In a world where there is no interaction between policymakers and companies, policy is in a vacuum.”

Ultimately, however, energy groups should expect such interactions to face greater scrutiny by shareholders.

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In this report: How greenwashing can overstate fund credentials; Nissan’s governance lessons for Japan Inc; Britain risks losing its edge on stewardship; private equity moves deeper into sustainability; packaged loans marked as growth area for green bond; investors pressure miners to disclose safety risks

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