Introduction
The investment chain outlines the flow of capital from ultimate beneficiaries to asset owners, asset managers and investee companies, eventually returning to the beneficiaries.Footnote 1 The obligation to act in the ‘best interest’ of customers is foundational to responsible investment governance. For asset owners, the customers are the ultimate beneficiaries; for asset managers, the customers are the asset owners. Traditionally, the ‘best interest’ standard has been interpreted narrowly in financial terms, but a broader understanding has emerged. Hart and Zingales argue that corporate decisions should aim to maximise overall shareholder welfare, not just monetary gains.Footnote 2 This reconceptualisation highlights a misalignment between asset owners, whose mandates increasingly incorporate beneficiary welfare and asset managers, who are primarily incentivised to maximise short-term financial performance.Footnote 3 Such misalignment poses particularly acute challenges for faith-based asset owners. For these institutions, divergence between welfare-oriented objectives and profit-driven asset management practices heightens the risk that investment activities may conflict with religious doctrine or broader ethical commitments.Footnote 4 This tension raises important questions about accountability, delegation and the integration of non-financial values.
In light of these challenges, a central question is which strategies faith-based asset owners can employ to ensure their investment activities align with their religious commitments. A notable example is the Church of England’s engagement with Royal Dutch Shell (Shell), through which the Church successfully encouraged Shell to become the first major oil and gas company to embed greenhouse gas (GHG) emissions reduction targets in its executive compensation framework. In December 2018, Shell and a coalition of institutional investors issued a joint statement confirming the company’s decision to link executive remuneration to the achievement of GHG emissions intensity reduction targets.Footnote 5 By analysing the case, this study demonstrates how faith-based investors can leverage influence within the investment chain to promote governance reforms that align corporate behaviour with broader ethical objectives.
This study examines this case and offers the following contributions. First, it represents a significant deviation from the conventional investment chain flow. In the customary model, capital flows and channels of influence progress sequentially from beneficiaries to the asset owner, then to the asset manager and finally to investee companies.Footnote 6 However, in this case, the Church of England, as the asset owner, bypasses asset managers and engages directly with the company. This direct engagement, which circumvents the asset manager’s intermediary role, challenges prevailing assumptions about the allocation of responsibility and influence pathways within the investment chain.
Second, this study highlights internal conflicts within the asset owner. The literature on ethical investment has shown a strong interest in differences among institutional investors.Footnote 7 While actors in the investment chain are often viewed as unified, differing perspectives can create tensions, leading to policy shifts reflected in subsequent actions. This study examines these internal disagreements within the Church of England, demonstrating how it navigated such tensions to engage with Shell, ultimately contributing to the company’s efforts to reduce GHG emissions.
Third, this study offers pertinent insights into the balance between faith and economic rationality. The Church of England has refrained from investments in alcohol and tobacco in order to align with its religious doctrine;Footnote 8 however, unlike this abstention, climate change cannot be mitigated by the Church of England acting in isolation. Even where divestment is pursued, the affected companies will continue to operate their business and eventually emit greenhouse gases. Accordingly, strategies that merely withdraw capital are insufficient; meaningful climate action requires engagement and interventions capable of influencing corporate behaviour and governance practices. This raises the question: How far the Church may – or indeed, should – intervene in social issues? This question assumes particular salience in the aftermath of the case of Harries v The Church Commissioners for England [1992] 1 WLR 1241, which highlights the situation wherein the Church operates simultaneously as a moral agent and as an institution constrained by economic rationality. Therefore, this study explores the structural tension between ethical considerations and fiduciary duty.
From this perspective, the work of Andrew Chandler,Footnote 9 which details the Church Commissioners’ activities during 1948–1998, is momentous. Particularly, it identifies that under Geoffrey Fisher’s leadership, a strategic shift occurred – from bond-centred conservative investment to equities and property, enabling a dramatic recovery from the post-War financial crisis. Additionally, it clarifies that the core objective was supporting the Church’s mission from a practical perspective through the establishment of the ‘trinity’ of clergy stipends, pensions, and housing. Furthermore, it indicates that the committee was not merely an investment entity, but rather an organisation responsible for complex pastoral and administrative tasks such as diocesan reorganisation and the repurposing of church assets while maintaining considerable institutional integrity. Commissioners sought reforms grounded in the Church’s mission rather than merely maintaining the status quo with no evidence of misconduct, even during the financial crisis of the 1990s. The Commissioners attempted to ‘steer a steady course’Footnote 10 through periods of adversity. The final part of this book presents the following passage.
Arguably, it was the achievement of the Church Commissioners between 1948 and 1998 to maintain, by a steady, ongoing reform of particulars, the contours of an order and a method which might well have decayed and even collapsed in some areas without their efforts. Perhaps a future age will observe that their legacy was simply to hold back for a period of time a decline which was altogether something too formidable to be halted by the Churches alone.Footnote 11
Building on Chandler’s analysis, this study shifts the focus to the post-1998 era. It examines how the Church Commissioners have exercised their power and adapted their functions within an evolving institutional and ethical landscape.
The remainder of this study is organised as follows. The next section provides an overview of the Church of England’s investment policy, articulating its religious values and guiding principles as an institutional investor. This is followed by a discussion of Shell’s position on the Paris Agreement, which outlines the company’s strategic responses to it. The article then turns to the Church of England’s initial relationship with Shell, clarifying points of engagement and areas of shared concern. It subsequently examines the process of collective engagement, focusing on how the actions of the investor coalition, including the Church of England, contributed to Shell’s policy shifts. The concluding section summarises key findings and identifies avenues for future research.
Church of England’s Investment Policy
The Church of England Pension Board serves as the pension fund for Church of England employees, with over 40,000 members and assets exceeding £3 billion. Alongside the Church Commissioners for England and the Church of England Funds, it is part of the Church of England’s National Investing Bodies (NIBs), which oversee assets totalling more than £13 billion. The Ethical Investment Advisory Group (EIAG) provides policy guidance to NIBs on ethical investment matters, ensuring coordinated operations across the sector.
A key feature of church-affiliated asset owners is the influence of religious doctrine on investment policies. The tradition of aligning Christian doctrine with investment practice is long-standing, leading to the exclusion of companies involved in gambling, tobacco and alcohol. The Church of England has maintained this approach, with a 2013 EIAG review recommending the avoidance of investments incompatible with Church doctrine, including the following:
The EIAG recommends against investment in any company involved in indiscriminate weaponry. It recommends against investment in companies involved in conventional weapons if their strategic military supplies exceed 10% of turnover.
The EIAG recommends against investment in any company that derives more than 3% of revenues from the production or distribution of pornography and against investment in any company, a major part of whose business activity or focus (defined as more than 25% of group revenues) is tobacco, gambling, alcoholic drinks, high interest rate lending or human embryonic cloning.Footnote 12
For alcoholic beverages, the threshold was increased to at least 5 per cent of revenue between 2013 and 2014.Footnote 13 This emphasis on doctrinal principles was reflected in the Pension Board’s policy and was subsequently implemented in practice, resulting in the exclusion of companies that met these criteria from the investment portfolio.Footnote 14 While incorporating religious doctrine into investment policy defines church-affiliated asset owners, it is noteworthy that, until this period, neither the EIAG nor the Pension Board established specific policies addressing climate change.
In July 2014, the World Council of Churches (WCC), representing over 500 million Christians globally, resolved to exclude investments in fossil fuel companies. As a member of the Council, the Church of England could have been expected to be affected by this decision. However, the resolution did not change the Church of England’s investment policy, as a spokeswoman clarified to The Guardian: ‘The WCC decision refers to its own financial investments only and not those of its member bodies’.Footnote 15
This seems odd. If Christian doctrine is deemed incompatible with fossil fuel use, council members investing in fossil fuel companies would be acting against their religious principles. Before the Council’s decision, Desmond Tutu, a theologian, wrote in a British newspaper about the link between religion and climate change. He stated that while ignorance of climate change could be excused 25 years ago, such justifications are no longer valid due to widespread awareness of its impacts. He criticised the Church’s investment policies, concluding his article as follows:
It makes no sense to invest in companies that undermine our future. To serve as custodians of creation is not an empty title; it requires that we act, and with all the urgency this dire situation demands.Footnote 16
The WCC’s decisions and Reverend Tutu’s observations were significant for the Church of England. The Church acknowledged the importance of addressing climate change, stating in its 2014 Annual Report that, ‘The NIBs recognise climate change as a distinct ethical investment issue and invest in line with a climate change policy’.Footnote 17 Nevertheless, the Church remained cautious regarding divestments. Richard Burridge, deputy chair of the EIAG, commented on this matter ‘Carbon emissions remain so embedded in our economic system that the EIAG’s [Ethical Investment Advisory Group] ethical investment policy recommendation will need to be sophisticated’ and ‘Any response will need to reflect both realism and risk in a way which acknowledges both the nature of the threat and our ability to contribute to a meaningful response’.Footnote 18
Thus, the Church of England deferred the formulation of its climate change investment policy until 2015 by refraining from the immediate exclusion of companies associated with fossil fuels. Subsequently, the EIAG provided theological advice on addressing climate change within the context of investment decision-making.Footnote 19 Key points concerning fossil fuel policy are as follows:
Not invest in any company where more than 10% of its revenues are derived from the extraction of thermal coal or the production of oil from oil sands on the basis that such companies are unlikely to be able to assist with the transition to a low carbon economy. In a circumstance where a company breaches the 10% threshold, having previously been in compliance, then the company should be given a grace period during which the company would be expected, following engagement, to comply with the policy. Should the breach of the threshold persist then the investment exclusion will be implemented. Similarly where a company newly ceases to breach the 10% threshold having been restricted, engagement should be conducted to provide assurance that the change can be expected to endure.
Divest, after appropriate engagement, from companies that make a significant contribution to emissions of greenhouse gasses and that the National Investing Bodies consider are not taking seriously their responsibilities to assist with the transition to a low carbon economy.Footnote 20
Burridge’s cautious stance suggested that the Church of England did not advocate for a blanket exclusion of fossil fuel companies. While coal extraction was explicitly targeted, oil was restricted only when derived from oil sands. Oil sands are sedimentary rocks containing highly viscous petroleum components, with extraction and refinement processes that are considerably more complex than those associated with conventional oil fields. As a result, the GHG emissions related to bringing these products to market are significantly higher, reportedly up to three times greater than those from conventional methods.
The Church of England has adopted a policy to exclude petroleum with the most severe climate change impacts while allowing investment in petroleum more generally. Church officials are largely supportive of this policy. Nick Holtam, the Church’s lead bishopFootnote 21 on the environment, stated that the policy ‘marks the start of a process of divestment as well as engagement with fossil fuel companies and better aligns the Church’s investment practice with its belief, theology and practice’ and Burridge, deputy chair of EIAG, emphasised the Church’s ‘moral responsibilities’.Footnote 22 Unlike the WCC and Reverend Tutu, the Church of England did not pursue full divestment; however, the policy was designed to maintain its doctrinal integrity. This may reflect a trust in engagement. For example, Edward Mason, Head of Responsible Investment for the Church Commissioners, stated, ‘Engagement is something that we will be looking to demonstrate success’.Footnote 23
In 2015, the Church of England, while formulating its climate change investment policy, supported the Aiming for A initiative, led by the church-affiliated fund manager Churches, Charities and Local Authorities (CCLA), and engaged more with British Petroleum (BP) and Shell. The Aiming for A initiative aims to encourage companies to achieve the highest possible rating on Carbon Disclosure Project (CDP)’s climate change disclosure assessments, known as the CDP A List. Mason identifies two reasons for the Church of England’s focus on this initiative: at that time, both BP and Shell were rated B by CDP and were among the London Stock Exchange-listed companies with the highest GHG emissions.Footnote 24
Investors supporting the initiative submitted a shareholder resolution urging Shell to strengthen its climate change disclosures for inclusion on CDP’s A List. The Board of Directors signalled its support for the resolution.Footnote 25 At Shell’s Annual General Meeting on 19 May 2015, the proposal was adopted with 98.91 per cent of votes in favour.Footnote 26 A comparable motion was approved at BP’s AGM the previous month. Commenting on these developments, Mason observed that the initiative aims ‘to challenge the companies to run their businesses so that they participate constructively in the transition to a low carbon economy’.Footnote 27 Here, too, emphasis was placed on facilitating a strategic transition rather than pursuing exclusion. For the Church of England, 2015 marked a notable success in engagement efforts, reinforced by the legitimacy afforded through the EIAG’s ‘theological advice’.
Shell on the Paris Agreement
In the previous section, we examined the Church of England’s investment policy and its early engagement with Shell. This section focuses on Shell, the company most directly affected by the Church’s engagement.Footnote 28 The discussion is situated within the broader context of 2015, the year the Paris Agreement was adopted.
The average global temperature continues to rise, and if this trend remains unchanged, significant harm to ecosystems is anticipated. Although international initiatives to address climate change existed – most notably the United Nations Framework Convention on Climate Change (1994) and the Kyoto Protocol (1997) – these instruments are increasingly regarded as insufficient. In response, the Paris Agreement was adopted on 12 December 2015. While the Kyoto Protocol imposed specific emission targets on individual states, the Paris Agreement established a shared global objective: limiting the increase in the global average temperature to well below 2°C above pre-industrial levels and pursuing efforts to restrict the rise to 1.5°C. Meeting the requirement of ratification by at least 55 countries representing 55 per cent of global greenhouse gas emissions, the Agreement entered into force in November 2016.
The approaches to achieving the objectives of the Paris Agreement can be broadly categorised into two: GHG capture and GHG reduction. A principal example of the former is photosynthesis, through which vegetation absorbs carbon dioxide and releases oxygen; thus, increased greening is significant. Technological progress and the commercialisation of Direct Air Capture (DAC), which extracts carbon dioxide directly from the atmosphere for long-term storage, are also desirable. However, greening is constrained by land availability, and DAC, due to technical limitations and high costs, does not yet deliver meaningful reductions at scale. Accordingly, the core means of achieving the Paris targets lies in reduction: refraining from producing, selling, or consuming goods that emit GHGs. Although the use of electricity is often unavoidable, the deployment of clean energy sources, such as solar and wind power, is essential. Prioritising these energy sources and scaling back or withdrawing from fossil fuels can help meet the commitments of the Paris Agreement. The problem is that such measures would require oil companies to relinquish what has traditionally been the core of their business.
Because of this, The Guardian characterised the adoption of the Paris Agreement as the ‘end of the fossil fuel era’.Footnote 29 This description clarifies the precarious position of oil companies. Both before and after the Agreement, oil companies allocated substantial resources to lobbying, employing strategies to prevent or dilute political intervention. For instance, between 2000 and 2016, the oil industry spent over US＄2 billion to obstruct climate-related legislative measures in the United States.Footnote 30 Moreover, according to estimates by a British environmental NGO, the five largest global oil companies – Shell, BP, ExxonMobil, Chevron and Total – spent US＄1 billion on public relations and lobbying activities in the three years following the Paris Agreement, specifically aimed at hindering the development of climate-related policies.Footnote 31
From the perspective of GHG emissions, it is inaccurate to regard oil companies as primary emitters. Like other manufacturing industries, oil companies require electricity to operate their headquarters and conduct extraction and refining processes. Their central argument is that the majority of GHG emissions occur at the point of end use. End consumers, such as operators and users of motor vehicles and aircraft, are responsible for the combustion of petroleum products and the resulting emissions. As Shell’s CEO, Ben van Beurden, stated: ‘Putting, in one form or another, a real, clear price on carbon that compels people to act with rational economic actions, I think is something that we need’.Footnote 32 This reasoning asserts that adjustments to GHG emissions should focus on user-level behaviour, including taxation and market incentives, rather than primarily on oil companies.
The Paris Agreement did not fundamentally alter the stance of oil companies, as reflected in their remuneration design. Assessing a company’s position typically involves consulting various corporate reports, which often include statements from managers. However, these reports avoid language that could create adversaries, resulting in carefully crafted wording for diverse stakeholders. In contrast, remuneration design necessitates the explicit selection of performance metrics. While a company could incorporate numerous metrics to demonstrate its considerations, such complexity obscures managerial commitment and hinders investors from identifying true priorities. Consequently, the number of metrics is limited. Thus, executive remuneration clearly indicates management’s commitment and the value they believe they have delivered or intend to deliver to society.
From this perspective, examining Shell’s remuneration design before and after the Paris Agreement reveals its stance on climate change. In 2011, short-term incentives were based on three key metrics: operational excellence (50 per cent), cash flow (30 per cent) and sustainable development (20 per cent). Long-term incentives consisted of four metrics: total shareholder return (TSR) (30 per cent), EPS (30 per cent), operating cash flow (20 per cent) and hydrocarbon production growth rate (20 per cent).Footnote 33 Although sustainable development is included in short-term incentives, covering accident rates, oil spill occurrences and water usage, it excludes climate change-related metrics. This remuneration design was consistently applied. The only change prior to 2015, when the Paris Agreement was adopted, was the 2014 replacement of the hydrocarbon production growth rate (20 per cent) in long-term incentives with return on average capital employed (ROACE) (20 per cent).
Adjustments to remuneration design following the Paris Agreement were implemented in 2017. The three short-term incentive metrics remained unchanged. Within the sustainable development component, 10 per cent was reallocated to metrics related to GHG emissions, focusing on emissions per unit of production rather than establishing absolute emissions targets. Thus, improved efficiency and reduced emissions per unit could still lead to increased total GHG emissions if production volumes rose. This design left a significant loophole: no short-term targets for overall GHG reduction were established. For long-term incentives, earnings per share (EPS) was replaced by four metrics – TSR, ROACE, operating cash flow and free cash flow – each weighted equally at 25 per cent.
Despite adopting the Paris Agreement, the remuneration design did not demonstrate a genuine commitment to significantly reducing GHG emissions. The adjustments to the design were largely superficial. Juliet Phillips of the responsible investment organisation ShareAction criticised the policy, stating, ‘Shell’s proposed updates fall short. The inclusion of a greenhouse gas target cannot disguise the fact this policy broadly reinforces business as usual – an unsustainable outlook that could put shareholder value at risk’.Footnote 34
Faith-Based Activism
Following the examination of Shell’s behaviour before and after the Paris Agreement, this section returns to the Church of England. It reviews the resolution presented at Shell’s 2017 Annual General Meeting.
At Shell’s Annual General Meeting in May 2017, the Dutch climate-focused NGO Follow This submitted the following shareholder resolution:
Shareholders support Shell to take leadership in the energy transition to a net-zero-emission energy system. Therefore, shareholders request Shell to set and publish targets for reducing greenhouse gas (GHG) emissions that are aligned with the goal of the Paris Climate Agreement to limit global warming to well below 2°C.
These GHG emission reduction targets need to cover Shell’s operations as well as the usage of its products (scope 1, 2, and 3), they need to include medium-term (2030) and long-term (2050) deadlines, and they need to be company-wide, quantitative, and reviewed regularly.
Shareholders request that annual reporting include further information about plans and progress to achieve these targets.Footnote 35
This resolution differed from the 2015 climate-related disclosure proposal by emphasising reductions in GHG emissions. Such reductions are essential for meeting the objectives of the Paris Agreement, yet Shell has been reluctant to implement them. Shell’s Board of Directors recommended that shareholders vote against the proposal, providing three reasons in the following pages of the AGM notice.Footnote 36 First, the transition of energy sources is strategically significant. A shift from coal to natural gas reduces environmental impact; however, setting targets prematurely would constrain strategic flexibility. Second, Shell argued that it has already enhanced the GHG efficiency of its production processes, thereby reducing the environmental impact of its products. Third, Shell maintained that achieving net-zero must be approached from a broader perspective. Rising energy demand, driven by population growth and improving living standards in developing countries, suggests that if Shell reduces production and sales volumes, other companies will increase theirs, preventing any overall global reduction in GHG emissions. A Shell spokesperson remarked, ‘The only realistic way that Shell could reduce its customers’ emissions would be by reducing the volume of products we sell to them. This would simply drive customers to other suppliers, make no real difference to overall emissions, damage our business and undermine our efforts to play an active role in the energy transition’.Footnote 37
In addition to the board’s opposition, proxy advisory firms ISS and Glass Lewis significantly influence the voting behaviour of institutional investors, recommending voting against the resolution.Footnote 38 Consequently, the likelihood of the proposal being approved was low. Adam Matthews, head of engagement for church commissioners, also observed prior to the AGM: ‘I’m not expecting that it will pass but the resolution is well-worded and we support its intent – it’s something the board should be taking note of’.Footnote 39 As anticipated, support was low with only 6.34 per cent of votes in favour, falling far short of the 75 per cent required for a special resolution.Footnote 40
Judging solely by the proportion of votes in favour, the resolution appears unsuccessful. However, by supporting a proposal opposed by over 90 per cent of shareholders, the Church of England distinguished itself with a more rigorous stance on climate change than most other investors.Footnote 41 In fact, Shell announced medium- and long-term emissions reduction targets of 20 per cent by 2035 and 50 per cent by 2050, in November 2017.Footnote 42
The Pensions Board’s 2017 Annual Report includes an evaluation of Shell. First, regarding its decision to vote in favour of the Follow This proposal alongside other investors, despite the resolution not passing, the report reflects as follows:
While the Pensions Board recognised the potential for the proposal to be prescriptive, a vote in support of the proposal was instructed in light of the strong alignment between the spirit of the proposal and the Pensions Board’s climate policy. The proposal received the support of 6.3% of the votes cast. A number of major Dutch Asset Owners supported the resolution. In December Shell published Scope 3 emission ambitions in part as a response to the resolution and was a major break with the rest of the O&G sector.Footnote 43
The report acknowledges that votes in favour may not necessarily lead to a resolution, but commends the clear stance that prompted Shell’s year-end announcement regarding its emissions reduction ambitions. However, it asserts that Shell’s progress has not met the Pensions Board’s expectations. It questions the effectiveness of the company’s approach to climate change, specifically noting concerns about Shell’s remuneration, as a significant portion of the incentive package remains dependent on volume-based performance criteria, such as oil and gas production.Footnote 44
From Faith to Escalation
This section first examines the Church of England’s relationship with the investor coalition Climate Action 100+ (CA100+), followed by an analysis of its engagement with Shell. CA100+ was initiated by the PRI and the California Public Employees’ Retirement System (CalPERS) and launched at the Climate Change Summit in December 2017. Its objective is to enable institutional investors to coordinate engagement with companies whose responses to climate change are inadequate, thereby supporting the goals of the Paris Agreement. The initiative identifies approximately 100 companies worldwide with high GHG emissions, with leading institutional investors engaging on its behalf. Shell has been included in this list since the outset.
At its inception, CA100+ comprised 225 signatory organisations, a number that has continued to grow, though not all signatories engage directly with companies on the priority list. For each company, two major investors with regional experience and the resources to attend shareholder meetings in person were designated.Footnote 45 In Shell’s case, the Church of England Pensions Board and an asset manager, Robeco, were appointed as lead investors.
For the Pensions Board, which had been engaging with companies, the advantages of joining CA100+ were twofold. First, it allowed for the articulation of secular justifications. Previously, the Church of England’s actions were underpinned by religious faith, as evident in the 2015 ‘theological advice’ from EIAG, which reinforced its stance toward climate-related companies. In contrast, CA100+ is not religiously affiliated and is grounded in the scientifically informed objectives of the Paris Agreement. This shift strengthens engagement with companies, as neither investors nor companies are assumed to share a particular faith. Second, there is strength in numbers. While the Church of England is a significant institutional investor, it struggled to influence Shell’s direction to its satisfaction. Collaboration with other institutional investors increases votes in favour of relevant resolutions. Companies take matters more seriously when approached by multiple investors rather than just one. Furthermore, if engagement fails and several investors consider divestment simultaneously, the resulting pressure on share prices would be substantially greater.
CA100+ requires each company to disclose information in accordance with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations. The TCFD framework calls for disclosure in four areas: (1) governance, (2) strategy, (3) risk management and (4) metrics and targets.Footnote 46 Prior to this initiative, companies interested in climate change had voluntarily disclosed information in various reports; however, these disclosures were not standardised, making inter-company comparisons difficult. CA100+ utilises the standardised TCFD framework to identify companies with inadequate climate-related measures, enabling investors to investigate the reasons for these deficiencies. Consequently, companies were required to take more substantive action regarding GHG emissions. This objective is central to CA100+.
CA100+ was established in late 2017, focusing initially on coal rather than oil. Pension funds, such as CalPERSFootnote 47 and the Norwegian Government Pension FundFootnote 48 , along with major European insurers such as AXAFootnote 49 , AllianzFootnote 50 , and ZurichFootnote 51 , have begun divesting or considering divesting from coal-related companies and projects. Additionally, banks such as Deutsche BankFootnote 52 , and Societe GeneraleFootnote 53 have started reducing or ceasing financing for these activities. As the focus was on resources with severe environmental impacts, that is coal, oil companies faced less pressure to adopt proactive measures to mitigate these impacts.
At Shell’s Annual General Meeting on 22 May 2018, a proposal by Follow This to establish targets aligned with the Paris Agreement was rejected by 95 per cent of votes cast. However, growing investor pressure became evident. Despite the overwhelming opposition, van Baal of Follow This highlighted that ‘There is a very clear signal that investors want targets, not ambitions’.Footnote 54
Among the investors signalling their position to Shell was the Pension Board, which went beyond merely casting an affirmative vote. On 4 May, approximately three weeks before the AGM, the Board sent a letter to Charles Holliday, Chairman of Shell’s Board of Directors, outlining its intention to vote in favour and explaining the rationale behind this decision. The letter stated the following:
We recognise that companies have been reluctant to set targets, expressing concern that targets may constrain their ability to act and to take advantage of opportunities as they emerge. We do not agree with this argument. In setting long-term targets, companies provide themselves with the flexibility to adapt and change their businesses in a staged and progressive manner, and in a way that allows them flexibility in how they achieve these goals. Such targets also allow you, the company, and us, the investors, to work together as our understanding of the science, the policy and the economics of the low carbon transition evolves.Footnote 55
At the shareholders’ meeting, Adam Matthews, representing the Church of England, delivered a statement concluding as follows:
The position we take in supporting the Follow This resolution at Shell is not one that is targeted at Shell nor is it intended to imply that we see you as a laggard on this issue. Quite the reverse.
Rather, it is based on our belief that we need targets across the whole oil and gas sector and not just at Shell. We expect all oil and gas companies to come forward with similar targets that include scope 3 emissions.
My question is therefore to ask if the Board, whatever the outcome of the Follow This vote, will re-consider its position on targets. It is clear from the statements made by other major investors today, in the media before the AGM, and through the Climate Action 100+ initiative, that there is strong shareholder support for such further action by Shell.
Shell is a leader, and we are asking you to take a further step. Is there a way that we can work together that will find a future resolution or announcement that the board and shareholders could jointly support?Footnote 56
Prior to and during the shareholders’ meeting, the Church of England articulated its position; however, the 2018 resolution was not approved.
Despite the meeting’s outcome, policy consideration continued. At the General Synod on 8 July, a motion regarding climate change investment was tabled. The main issue was divestment. The original motion urged the NIBs to engage urgently with companies rated poorly by the Transition Pathway Initiative (TPI) and, starting in 2020, to begin divesting from those not seriously aiding the transition to a low-carbon economy. This was deemed inadequate, prompting discussion of an alternative amendment urging the NIBs to engage promptly with poorly rated companies and, beginning in 2020, to divest from any fossil fuel company not on an unequivocal path by 2020 to align its business investment plan with the Paris Agreement to limit global warming to well below 2°C.Footnote 57 The distinction between the two formulations lies in the criteria employed: the former refers abstractly to the transition to a low-carbon economy, while the latter grounds the standard explicitly in the Paris Agreement. Moreover, expectations for non-compliant companies differ: the initial motion called for ‘start to divest’, while the revised amendment required ‘divest’. In summary, the revised proposal sought a more concrete benchmark and an accelerated timetable for divestment.
Prior to the Synod, 91 bishops sent a letter calling for divestment from fossil fuel companies. The letter stated: ‘This will provide a crucial opportunity for the Church to demonstrate credible leadership on one of the most important moral issues of our time’, and ‘as companies such as Shell and BP are still pursuing business plans that would lead to 3–5+°C of global warming, there is little sign that notice is being taken’, urging Synod members to adopt a more forceful proposal.Footnote 58
From the perspective of prioritising engagement, the option of offering a limited negotiation scope prior to divestment was not adopted. Instead, a two-stage approach was approved. This approach retained the original proposal’s wording, deemed inadequate, and amended the motion for the Synod to ‘urge the NIBs to ensure that by 2023 they have disinvested from fossil fuel companies that they have assessed, drawing on TPI data, as not prepared to align with the goal of the Paris Agreement to restrict the global average temperature rise to well below 2°C’.Footnote 59 The motion passed with 347 votes in favour, four against and three abstentions. Following the vote, Bishop of Manchester David Walker commented:
I am sympathetic to Canon Goddard’s amendment because 2023 accords better with our strategy. It gives engagement the time it needs. And it is aligned with the timeframe for Climate Action 100+, a global collaborative engagement initiative by investors with ＄30 trillion in assets, in which the national investing bodies are leading on several key companies including Shell & Exxon.Footnote 60
Although the motion attracted substantial support both numerically and in expressed opinion, it nonetheless exposed a clear divergence of views within the Church of England. By extending the engagement period, the timeline for divestment was prolonged, generating considerable dissatisfaction, particularly among groups advocating for a more stringent approach. The motion adopted by the Church of England was perceived as insufficient compared to the investment policies of other Christian organisations, such as the Methodist Conference’s 2017 resolution to divest from companies misaligned with the Paris Agreement by 2020,Footnote 61 and the Church of Ireland General Synod’s 2018 decision to approve full divestment from fossil fuel-related companies.Footnote 62 Despite the favourable vote count, the decision left a legacy of internal tension, with strong dissenting voices continuing to press for complete divestment.Footnote 63 Addressing this internal disquiet required not only adherence to the policy endorsed by the Synod but also the pursuit of further, more decisive action.
Meanwhile, Shell had additional reasons to treat the matter seriously. The motion passed by the Synod implied that the Church of England would divest from the company in 2023. Although Shell had set emission-reduction ambitions, these were assessed as insufficient to meet the goals established by the Paris Agreement.Footnote 64 In October, Responsible Investor reported that the New York State Pension Fund was considering divesting from ExxonMobil because of its inadequate response to climate-related shareholder resolutions.Footnote 65 These developments undermined the assumption that divestment functioned merely as a symbolic negotiating tool. Investor scrutiny and divestment options were expanding from coal to oil. Should the Pensions Board, as the body responsible for engagement, ultimately decide to divest, it would signify a judgement that Shell’s climate strategy lacked long-term credibility, notwithstanding ongoing dialogue. Such a move could have influenced other investors and potentially triggered a chain reaction of divestments, posing a worst-case scenario for Shell.
Consequently, the Church of England adopted a more stringent stance, while Shell needed to align more closely with the Paris Agreement targets. In November 2018, Shell hosted the Pensions Board and Robeco at its headquarters and agreed to their demands.Footnote 66 It was splattered as ‘Shell had caved’.Footnote 67
The following month, Shell announced its intention to introduce short-term GHG emissions targets from 2020 and link the achievement of these targets to executive remuneration.Footnote 68 Shell revised its remuneration structure as follows: In 2019, the long-term incentive – previously comprising four equally weighted components (TSR, ROACE, cash flow from operating activities, and free cash flow) – was adjusted so that each accounted for 22.5 per cent, with the remaining 10 per cent assigned to an energy transition metric. Additionally, from 2020, half of the 20 per cent of short-term incentives linked to sustainable development was specifically tied to reducing GHG emissions.Footnote 69 These revisions linked 10 per cent of both short-term and long-term incentives to climate-change mitigation metrics. The changes received over 90 per cent shareholder approval at the May 2020 Annual General Meeting and were subsequently implemented. Importantly, these GHG-reduction metrics could constrain Shell’s core operations. They signal a commitment to climate action driven by wider societal expectations rather than direct contributions to corporate performance or growth, highlighting the effectiveness of engagement by an asset owner based on religious faith.
Conclusion
Traditionally, within the investment chain, asset owners represent the source of capital with intentionality, asset managers act as gatekeepers responsible for deploying and stewarding that capital, and companies utilise it to expand their operations and generate returns. This study examines a case that diverges from this conventional understanding: the Church of England, a faith-based asset owner, engaged directly with a company, bypassing the asset manager intermediary. This direct engagement contributed to Shell’s decision to incorporate GHG-emissions reduction into its remuneration design. Shell’s CEO van Beurden noted that ‘Nobody can see how the energy transition will play out over this period’Footnote 70 and remark that setting short-term targets would render the company ‘little more than fodder for lawsuits’.Footnote 71 Thus, the Church of England’s engagement as a faith-based asset owner represents a significant success. The analysis identifies three key findings.
First, within the Church of England, two sets of values coexist: ethical consistency grounded in doctrine and pragmatic considerations as an institutional investor, often generating internal tension. Rather than endorsing calls for full divestment, the Church adopted a phased and incremental approach. This constituted an internal compromise, prioritising engagement as the principal strategy while striving to maintain theological coherence and recognising the structural reality of the fossil fuel sector’s deep entanglement with the wider economy.
This raises a further question: Why did the Church of England refrain from divesting, unlike the WCC and the Methodist Church? Put differently, what compelled it to seek a compromise? Perhaps, the following factors, though speculative, were mutually reinforcing. One contributing factor is arguably that the Commissioners are, in a sense, ‘too big to change’. As Chandler has demonstrated, the Church Commissioners have become the primary providers of clergy stipends, pensions, and housing, with numerous other financial responsibilities. To fulfil this responsibility, the institutions cannot readily alter their existing investment policy. Underlying this institutional inertia is the Commissioners’ considerable investment expertise. They achieved positive returns for sixteen consecutive years up to 2024, maintaining consistent performance even during the disruptions caused by the COVID-19 pandemic.Footnote 72 Furthermore, the prioritisation of faith-based considerations raises complex legal constraints. Given the Church of England’s experience with the case Harries v The Church Commissioners for England [1992] 1 WLR 1241, a risk-averse approach on the part of the Commissioners is comprehensible. In sum, the principal reasons include the perpetuation of their historical role, the entrenchment of established investment methodologies, and the mitigation of legal risk.
Second, despite these internal tensions, the Church of England prompted Shell to make strategic changes through continuing and proactive engagement. In particular, its support for the Follow This resolution and revisions to its investment policies communicated a clear expectation for the company to establish long-term targets aligned with the Paris Agreement, contributing to Shell’s shift.
Third, taken together, this case study demonstrates that faith-based asset owners, by engaging directly with companies beyond the conventional investment chain, can reconcile asset managers’ focus on financial optimisation with the integration of ethical values, thereby maximising shareholder welfare. The internal tensions within asset owners and the mechanisms for navigating these tensions to influence corporate strategy are areas that are insufficiently addressed in traditional investment chain research. These findings have implications for reconsidering engagement strategies, not only for faith-based asset owners but also for investors seeking to prioritise stakeholder welfare more broadly.
This study has three important limitations. First, although Shell’s incorporation of GHG-reduction metrics into its remuneration design represents a novel precedent among major oil companies, its effectiveness remains subject to scrutiny.Footnote 73 The metrics were limited to efficiency improvements, without requiring absolute reductions in emissions. Potential trade-offs with other key performance indicators necessitate careful evaluation to determine whether the company’s climate strategy constitutes a genuine commitment to the energy transition.
Second, from a practical standpoint, it is difficult to place excessive expectations on asset owners’ engagement with companies. While actively engaged, many asset owners lack the necessary resources to undertake such initiatives and must go through an asset manager, as in the traditional investment chain. In this case, asset owners should provide asset managers with more explicit mandates. Gosling observes that, when pursuing moral objectives, asset managers require ‘crystal-clear mandates’ from asset owners, yet such clarity is rarely achieved in practice.Footnote 74 If asset owners aim to maximise shareholder welfare, their instructions must be more explicit than currently practiced.
Third, from a policy perspective, such engagement may have been feasible only in the UK, where trustees may consider ‘the extent (if at all) to which non-financial matters are taken into account in the selection, retention and realisation of investments’.Footnote 75 The provision is a distinctive feature of the UK regulatory framework. By contrast, US institutional investors face challenges in pursuing non-financial objectives. Under the sole-interest rule, US institutional investors are bound by fiduciary duty to prioritise financial returns.Footnote 76 Consequently, compared with the US, there is a greater scope for pursuing non-financial benefits in the UK. Given these policy differences, the findings may not be generalisable to contexts outside the UK.
Acknowledgements
This work was supported by JSPS KAKENHI Grant Number JP 26K03372. AI tools (ChatGPT, Gemini, Claude and DeepL) were used for English editing and proofreading. The author is grateful to Editage for English-language editing and Takuya Iwasa, the editor, and the anonymous reviewer for their insightful comments.
Competing interests
The author is a member of the joint research programs established by the University of Osaka in collaboration with Mercari and the Japanese Standards Association, respectively, holds stock in Persol Holdings and was previously employed by Persol Research and Consulting (December 2022 – June 2025). The views expressed herein do not necessarily reflect the those of any past or current affiliated institutions.
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