Mental models of the drivers of fossil fuel investors’ voting behaviour on climate resolutions

Abstract

Mitigating climate change and keeping the increase of global temperatures well below the two degrees underlined by the Paris Agreement is crucial to preventing risks to society. This requirement can only be fulfilled if fossil fuel companies change, as they indirectly produce the majority of greenhouse gasses. Institutional investors can play a crucial role by supporting climate resolutions that request fossil fuel companies to adopt measures aligned with the Paris Agreement. This study investigated to what extent and in what respect different reasonings behind institutional investors' decision-making led to varying voting decisions at the climate resolution filed at Royal Dutch Shell in 2020. This research analysed the mental models of 23 institutional investors with different voting decisions by applying a causal cognitive mapping technique. The produced mental models containing the same voting decisions were compared to the mental models of investors having a different voting decision based on Distance Ratios, Complexity tests and by comparing the perceived influence of drivers and their relationships with the resultant voting decision. Results show that the mental models of investors with different voting decisions differ between the investors who voted “in favour” and “against” and also between investors who voted “against” and “abstain” on the climate resolution. No significant difference between the mental models of investors who voted “abstain’’ and “in favour’’ was found. The mental models underlying the different decision-making processes on their voting behaviour did not indicate a significant complexity difference. However, the significance tests were strongly underpowered. A review of the frequencies of perceived drivers and their relationships indicated that these, to a certain extent, differed between investor groups with different voting decisions. An important limitation related to the results is the small sample size of the study. Nonetheless, this study provides scientific implications as it highlights the potential of mental model theories in the shareholder activism research field. Moreover, this study can be reviewed by institutional investors that file climate resolutions at fossil fuel companies to apply these insights for forming climate resolutions and facilitating related conversations between shareholders.