Investors, NGOs Hail Day of Reckoning for Oil Majors

Reversals for Shell, ExxonMobil and Chevron show oil and gas firms cannot “hide behind” net-zero pledges. 

Setbacks suffered by Shell, ExxonMobil and Chevron yesterday demonstrate the need for fossil fuel firms to rapidly decarbonise or risk serious consequences, according to Mark van Baal, Founder of shareholder activist organisation Follow This.

With courts, policymakers and investors backing accelerated decarbonisation strategies in order to achieve net-zero greenhouse gas (GHG) emissions by 2050, yesterday’s reversals will be the first of many if climate change isn’t taken seriously, van Baal told ESG Investor.

“Investors, judges, scientists and the public have all now realised that oil and gas majors won’t take action on their own. Oil and gas majors are the only ones who haven’t realised the importance of decarbonisation yet. They can no longer hide behind their promises to be net-zero by 2050. We want action,” he said.

Follow This recently saw its second climate resolution defeated by Shell shareholders with a 69.53% vote against, despite backing from some large institutional investors. An advisory vote in support of the firm’s transition plan received 88.74% of votes, with 11% of shareholders voting against.

It’s also a clear sign to investors that exercising their voting power is a powerful tool to enable change, he added.

At ExxonMobil’s annual general meeting (AGM) yesterday, shareholders voted for the election of two new climate-conscious members to the firm’s board of directors in order to accelerate the transition to clean energy. Elected from the slate nominated by climate activist shareholder Engine No. 1, Gregory Goff is the former CEO of the Andeavor oil refining company and Kaisa Hietala is the former Executive Vice President of renewable products at Neste.

The vote – also backed by California Public Employees Retirement System (CalPERS) and California State Teachers Retirement System (CalSTRS) – was in response to the company’s continued failure to respond to the climate crisis or produce a sustainable business plan. CalPERS and CalSTRS manage US$444 billion and US$248.5 billion in assets under management (AUM) respectively.

“Investors are no longer standing on the sidelines. This is a day of reckoning. Climate change is a financial risk and as fiduciaries, we need to ensure that boards are not just independent and diverse, but climate competent,” said Anne Simpson, Chair of Climate Action 100+ and its Steering Committee and Managing Director of Board Governance and Sustainability at CalPERS. The Climate Action 100+ initiative works with more than 570 investors with US$54 trillion in AUM.

Furthermore, 61% of shareholders at Chevron voted to in favour of an activist-led resolution asking the company to set Scope 3 emissions targets for its energy products. A following first-time proposal asked the company to report on its climate-related financial risks, receiving 48% of the vote.

The Chevron resolution was filed by Follow This and is the third successful campaign coordinated by the organisation against US-based oil and gas majors, with voting victories against Phillips 66 and ConocoPhillips earlier this month.

“Oil majors are being forced to address the elephant in the room. It’s no longer acceptable to say that Scope 3 emissions are not their responsibility,” said van Baal.

Following the appointment of President Joe Biden, van Baal noted that US shareholders finally feel empowered to vote for climate-related resolutions. “It’s now feels more feasible for US shareholders to back change,” he said.

Shareholders and activists are proving just as active on the other side of the pond, van Baal added, with Shell being a clear example of what may happen if European oil and gas majors don’t produce sufficiently credible energy transition plans.

A Dutch Court ruled yesterday that Shell must slash its CO2 emissions more dramatically than has been promised in its Energy Transition Plan.

The ruling concerned a lawsuit filed by a group led by Dutch environmental organisation Friends of the Earth Netherlands. The lawsuit asked Shell to formally agree to change its climate policy, as a 20% reduction in emissions intensity over the next decade wasn’t deemed enough for the company to meet its net-zero target. The Court agreed, with the judge ordering a reduction of 45% over the next decade instead.

Shell will be appealing the ruling, but this lawsuit is likely to be the first of many against oil and gas majors, van Baal said.

Even if Shell successfully appeals, other firms will be worried, said Guy Turner, Founder and CEO of specialist data, analysis and advisory firm Trove Research. “The more examples there are of successful lawsuits, the more [oil and gas majors] will be unwilling to run the gauntlet and keep having to defend their existing business models.”

While forcing oil and gas companies to pivot away from fossil fuels is “directionally right”, forcing the transition “purely for environmental reasons” is missing the point, he said.

The energy transition must make business sense and support shareholders’ long-term financial interests, Turner explained, adding that, unless all oil and gas majors are transitioning, ‘dirtier’ corporates will buy up the fossil fuels abandoned by those willing to switch the renewables, thereby maintaining the fossil fuel market with shareholders losing out.

In tandem with a reduction in fossil fuel usage, oil and gas majors need to see the long-term financial benefits of backing the clean technology sector, Turner said. “This will accelerate technology improvements and drive down costs, making wider adoption even more rapid.”

Ultimately, governments want to support business and employment and will therefore be less inclined to support radical energy transition plans if they don’t make financial sense, he warned.

“The more they see oil and gas corporates locked into fossil fuel production, the more reluctant they will be to destroy value. But, with corporates transitioning to cleaner technologies, they will start lobbying for more radical transition policies,” Turner said.

This ‘day of reckoning’ follows a report published by the International Energy Agency (IEA) last week, which reiterated that new global oil and gas development must stop if the world wants to achieve a 1.5°C scenario.

The ‘Absolute Impact 2021’ report published today by think tank Carbon Tracker highlighted that net-zero claims from oil and gas majors “are far from equal”. For example, some targets include the full spectrum of company activities, whereas others cover a small minority of production process emissions. Carbon Tracker has called for an industry-standard approach to reporting. alongside increased transparency and accountability.

“Once again, the fossil fuel industry is being told their era is over,” said Ben Cushing, Financial Advocacy Campaign Manager at NGO Sierra Club.

“The people have told them and demanded change. Elected leaders at every level of government across the country have told them and demanded change. And now, their own shareholders have told them and are forcing change, just as courts are doing so as well.”

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