BP is being challenged over its surge in upstream oil and gas spending by a group of shareholder activists and pension funds as they switch tactics on climate change to question the sector’s business strategy.
Nest, the UK’s largest workplace pension scheme by membership, Swiss federal pension fund Publica and four British local authority funds are part of the move, taken in response to companies such as BP ditching their renewable energy businesses and rolling back climate pledges.
The investor group will target “undisciplined capital allocation” at BP and have co-filed a resolution with the Australasian Centre for Corporate Responsibility at BP’s annual meeting in April.
The resolution will mean incoming BP chief executive Meg O’Neill again faces the ACCR, which repeatedly challenged her at Woodside Petroleum.
The shareholder proposal calls for BP to set out how the company takes “a disciplined approach to capital expenditure in order to generate an acceptable return on capital” for new oil and gas projects.
In a presentation to shareholders last February, BP said it was making a “fundamental reset” to its strategy which would see it pivot away from renewable energy and focus on oil and gas production.
It said it would increase its spending on oil and gas by $1.5bn to $10bn a year and axe spending on clean energy from $7bn to $1.5bn-$2bn a year.
“We are reallocating capital to the highest-return opportunities,” said Murray Auchincloss, the former BP chief executive, who pledged to increase BP’s return on average capital employed from 12 per cent in 2024 to more than 16 per cent by 2027.
Gordon Birrell, BP’s head of production, said the next generation of BP’s oil and gas projects would have an internal rate of return of more than 20 per cent.
ACCR’s shareholder resolution is the second filed at BP this year after Dutch group Follow This and more than 20 institutional investors called on the oil and gas company to disclose its strategies for maintaining profitability if the demand for fossil fuels declines.
The two resolutions indicate that shareholder groups that previously pushed for oil and gas companies to set out net zero emissions targets are now pivoting towards a focus on longer-term profitability.
Diandra Soobiah, director of responsible investment at Nest, said BP had “underperformed for the past decade, including the period they were prioritising oil and gas production”.
“Now they have dropped their renewables strategy, investors need to be reassured that any expansion to their upstream oil and gas portfolio will be governed by robust capital discipline and generate sustainable returns,” she said.
The ACCR said its research had found that the $22bn BP spent on conventional oil and gas projects over the past six years had delivered limited value to shareholders.
“Investors would be concerned if the new CEO, Meg O’Neill, doesn’t take the opportunity to genuinely reflect on the numbers and poor returns from oil and gas growth projects and whether increasing upstream capex will create more shareholder value,” said Nick Mazan at ACCR.
The resolution asks the company to disclose by April 2027 an assessment of the relative cost competitiveness of projects, cost overruns and delays, and how continued capital expenditure on exploration would create value for shareholders.
The investors behind the resolution account for just 0.42 per cent of the capital and it marks the first time that ACCR has filed a resolution at BP.
However, ACCR gained the support of a fifth of voting shareholders for a resolution questioning Shell’s gas expansion strategy at its annual meeting last year, as well as from almost 30 per cent of voting shareholders at Glencore in 2023.
In 2020, ACCR won the backing of more than half of voting shareholders for a landmark resolution calling for ambitious climate targets at Woodside, where O’Neill was a senior executive from 2018 before becoming chief executive in 2021. It also filed resolutions there again in 2022.
BP declined to comment.
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