BP faces legal challenge after excluding climate resolution

BP, one of Britain’s largest listed companies and a major constituent of the FTSE 100, is facing renewed scrutiny over shareholder rights following its decision to exclude a climate-related shareholder resolution from its annual meeting in April.

The oil major released its Notice of Annual Meeting this week, including one climate resolution filed by the Australasian Centre for Corporate Responsibility (ACCR) which was opposed by BP, but omitting a second resolution submitted by Follow This, a Netherlands-based shareholder group. 

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The Follow This resolution asked the company to set out its plan for protecting shareholder value in the event of declining oil and gas demand. It was filed in January with the backing of 16 major institutional investors and had initially been accepted by BP. However, it was not included in the AGM notice released this week.

Legal challenge

Responding to the omission, Follow This founder Mark van Baal said the move was “unprecedented” in the UK and constituted an “attack on shareholder rights”.

“Shareholders have been satisfied with engagement without concrete results for too long. Now they are becoming active and increasingly using the only formal power they have – the power of the vote – boards are exploring all avenues to side-line shareholders. In the US and in the UK, where most oil majors are based,” he told Net Zero Investor.

The move was also strongly criticised by investors backing the resolution.

“BP must publicly explain why it has chosen to trample on shareholders’ rights or risk losing the faith of institutional investors,” said Robert Hulme, ESG manager at the West Yorkshire Pension Fund.

Follow This has now given BP an ultimatum to include the resolution in a supplementary notice by Wednesday or face legal action.

Under the Companies Act 2006, companies may refuse to circulate shareholder resolutions if they would be ineffective, frivolous or defamatory. However, if a court finds that a resolution was unjustifiably excluded, it could order the company to circulate it. In extreme cases, directors could face claims that they breached their duties, and procedural flaws could raise questions about the validity of the AGM process.

BP responded to the challenge, stating: “The board determined, having taken legal advice, that the proposed resolution did not conform to legal requirements. Moreover, we have a clear strategy with multi-year targets to drive long-term shareholder value across the cycle and remain fully committed to responsible industry-standard climate related reporting”, a spokesperson for the firm told Net Zero Investor. 

US-inspired anti-ESG backlash

BP’s move comes amid a broader backlash against shareholder engagement.

In the US, the Securities and Exchange Commission announced last year that it would no longer handle most challenges related to so-called “no-action requests”, which previously allowed investors to contest companies’ decisions to exclude shareholder proposals. As a result, investors are increasingly turning to courts to challenge such exclusions.

Catherine Howarth, chief executive of ShareAction, said BP’s decision to reject the Follow This resolution reflected a wider political backlash against ESG in the US.

“What is going on is a highly problematic, politicised attack on shareholder rights in the US. We are now seeing a number of companies emboldened by that environment and thinking it is a good time to attack shareholder rights on this side of the Atlantic as well,” she told Net Zero Investor on the side-lines of the Pensions UK Investment Conference.

She added that there was a real risk of these attacks playing out in the UK as well. "We are extremely unhappy about the government's proposal, following extensive industry lobbying from listed companies to organise AGM's with no in-person attendance of shareholders. In our long experience, it makes a really important difference, both to the good running of the meeting and the exchange that takes place" she added. 

Meanwhile Lindsey Stewart, director of Institutional Insight at Morningstar, described the move as “a surprise”.

“It’s worth noting that the UK is not the US, where the thresholds for filing shareholder resolutions are much lower,” he said.

BP’s appointment of former Woodside Energy executive Meg O’Neill as chief executive could also have influenced the decision, Stewart suggested.

“They have a new chair and CEO, and they are both clearly trying to lay their marker down,” he said.

At Woodside, O’Neill faced an unprecedented level of shareholder opposition, with nearly 60% of investors rejecting the company’s climate transition plan.

If BP proceeds with excluding the climate resolution, shareholders could instead vote against the company’s chair. A similar strategy was pursued at last year’s AGM after BP announced a reversal of its energy transition strategy only after the deadline for filing climate resolutions, leaving investors with limited scope to challenge the move.

As a result, nearly a quarter of BP shareholders voted against outgoing chair Helge Lund, a protest that contributed to leadership changes at the company.

However, a shareholder revolt against BP’s CEO Meg O’Neill remains unlikely, Stewart said, noting that such a move could further pressure the company’s already fragile share price.

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