Responsible investment pressure group, ShareAction is calling on investors to oppose the executive pay policies of oil companies, Shell and BP, arguing that they are not aligned with the long-term interests of shareholders.

ShareAction said that the remuneration for executives at both oil companies is rewarding the achievement of corporate strategies which could put shareholder value at risk as the economy shifts towards low carbon energy production.

Juliet Phillips, Campaigns Manager at ShareAction, said:“A cocktail of policy, technology and market-driven factors are brewing up a storm of uncertainty over the future of fossil fuels. To encourage oil executives to focus on ‘business as usual’ seems an imprudent approach to remuneration. Both companies seem complacent about the challenge to their commercial prospects of the action now underway at city, regional, national and international level to decarbonise economies.”

ShareAction has produced briefings for institutional investors in BP and Shell for them to consider before their AGMs later this month. It has also assisted pension savers to write to their funds about voting down the remuneration policies.

Neither company it is suggested has a corporate strategy that is making the changes required to meet the goal of the Paris climate change agreement which is to limit temperature rises to well below 2°C, with an ambition for 1.5°C.. The papers find that the firms’ demand projections, capital allocation plans, and strategic priority areas pose challenges to their resilience to low-carbon outcomes.

For example, BP proposes to spend $200 million a year on the ‘venturing and low-carbon’ pillar of its strategy. This represents 1.3% of the company’s total capital expenditure, down from previous years. In 2005, BP committed to $800 million a year. Similarly, Shell’s ‘New Energies’ low-carbon portfolio is projected to represent just 3% of the firm’s capital expenditure by 2020.

Shell’s annual bonus includes a 10% weighted metric based on the reduction of operational greenhouse gas emissions. ShareAction warns that reducing operational emissions plays a limited role in ensuring portfolio resilience under low-carbon, low-demand scenarios, which requires looking at demand-side changes to the energy mix. Furthermore, the remaining 90% of the bonus remains heavily weighted towards hydrocarbon project delivery. However, ShareAction warned that this could stall progress towards the adoption of a low-carbon business model.

BP has gone further than Shell to remove volume related incentives, including the controversial ‘Reserves Replacement Ratio’, ShareAction Said. BP has included indicators related to strategic progress on renewables trading and venturing. However, similarly to Shell, the company has not set clear timelines or milestones for transitioning to a low-carbon business model.

Phillips added: “These remuneration policies are the first to be put to the vote following the successful ‘Aiming for A’ resolutions. This is an important test of investor stewardship to see whether investors hold BP and Shell to account on their lack of progress on transitioning for low-carbon resilience.”

BP’s AGM will take place next week (17th May), while Shell’s AGM is on 23rd May. In its broad remuneration analysis for each company, Manifest has given them a grade E (with grades running from A to F) with the suggestion that pay in both could be considered excessive given the size of the company.

BP had announced that it had cut the pay of its chief executive, Bob Dudley, and said it was proposing a simpler pay policy to shareholders. Manifest said that Dudley’s long-term incentive performance participation limit from 550% to 500% of salary although the financial directors’ participation limit increased from 400% to 450% of salary. Meanwhile Manifest noted that Shell has adopted emissions related performance measures for its annual bonus.

Meanwhile, Manifest’s sustainability analysis has rated both of the oil companies as good – a B grade for 2016. Shell has scored particularly well on its disclosure and transparency related to sustainability issues but has seen a reduced score, compared to 2015, in respect of risk management. BP also scores well for its disclosure and transparency but its management processes, risk management and public participation scores were down on 2015.