Climate activists led a Shell shareholder rebellion over decarbonization targets, winning 19% of the vote. What difference will it make?

Shell faced a significant shareholder rebellion over its climate strategy, with 19% of shareholder votes backing a resolution calling for more urgent action—against the board’s guidance.

Why does it matter?

The shareholder resolution may not have passed at Shell’s AGM, but the extent of support for it speaks to the increased tendency of investors generally over recent years to exert pressure on companies to take bolder action against climate change.

As the negative long-term consequences of global warming become clearer, many larger institutional investors like pension funds are starting to think about how the decisions they take today could affect the value of their portfolios in 20, 30 or 40 years’ time. Shareholder engagement with polluters such as oil and gas companies is one way they can move the dial.

The context

Resolution 23, tabled at the AGM in London yesterday, asserted that Shell “does not sufficiently demonstrate” how it will meet the Paris Climate Agreement goal of limiting the rise in average global temperatures to 1.5C above pre-industrial levels.

It was co-filed by 27 institutional investors—including AXA Investment Managers and Amundi—which collectively have $4 trillion assets under management, and co-ordinated by climate activist investor Follow This, which has tabled similar votes before, both at Shell and at rivals including BP, Equinor and ExxonMobil.

The vote came after Shell, which insists its climate transition plan is Paris-aligned, recently dropped its 2035 target of reducing the emissions intensity from the use of its products (like driving a car) by 45%.

The board advised shareholders that voting in favor of the resolution would have a “material negative financial impact” on the company and its customers. It also called out the governance implications of the resolution, which it said would be binding.

Follow This founder Mark van Baal disagreed. “Shell is throwing technicalities about governance to divert attention from the fact it is not Paris-aligned,” he wrote in an investor briefing.

Some major investors, such as Norway’s $1.6 trillion wealth fund, stopped short of supporting the resolution, but asked the company to provide further guidance about how it will meet its own targets, in a sign that a ‘no’ vote wasn’t necessarily a ringing endorsement of the company’s climate strategy.

What’s next?

The proportion of investors moving against the board’s recommendation in votes like these would need to be substantially higher to force a change in direction. In fact, in Shell’s case, 75% would need to support a special resolution for it to be binding.

The fact that support for Follow This’s resolution this year was slightly below the 20% mark it achieved in 2023 doesn’t suggest we’re anywhere near approaching that point. However, 19% is not a small level of dissent, and it is still substantially higher than the 2.7% Follow This achieved in its first attempt in 2016.

“Their peers will follow one day,” van Baal said of the resolution’s backers.

Shareholder votes also don’t necessarily need to pass in order to influence what management does. Simply by signaling the level of investor concern about climate change, they can extract concessions. Under former CEO Bernard Looney, for example, BP adopted more ambitious climate targets, engaging with climate-focused shareholders to the point that, for a while, there was even talk of a joint shareholder resolution with Follow This in 2021.  

The proof will be in the pudding. In 2023, Shell announced that 23% of its capital investment spending in 2023 was in low carbon solutions, which includes EV charging, biofuels, renewables and hydrogen. It is still therefore investing enormous sums annually into oil and natural gas—and this should surprise no one.

While Shell and other petrochemical companies are diversifying and reducing the emissions intensity of their products somewhat (between 2016 and 2023, there was 6.3% reduction, for example), none of them are proposing exiting their core business.

Votes like Resolution 23 won’t change that, but they might impact the pace and extent to which oil companies change.

What to watch out for

Follow This and others will continue to file climate resolutions at AGMs, so keep an eye on whether investor support for them grows, plateaus or recedes.

The oil companies’ own targets can be quite telling too—will they get more ambitious or less in the near to medium term?—if you don’t mind reading through 400-page annual reports, footnotes and all.

For further reading, Fortune also covers Shell, BP, Total and the oil and gas industry more widely.

This story was originally featured on Fortune.com