Money talks —
Two shareholder votes and one court ruling hint at a sea change for oil and gas.
Tim De Chant
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What comes up might go back down.
Yesterday was a bad day to be an oil company.
First, a court in the Netherlands ruled that Royal Dutch Shell needs to slash its emissions more than it had planned in order to meet Paris Agreement targets. The court ordered the oil supermajor to cut carbon pollution by 45 percent by the end of the decade.
Next, shareholders of ExxonMobil elected at least two board candidates—and possibly a third—put forth by activist investors who want the company to rein in its sprawling oil and gas operations and invest more in clean energy.
And lastly, Chevron’s shareholders rebuffed the company’s board to approve a proposal to reduce emissions produced by the use of its products, like the burning of gasoline.
Together, the legal ruling and shareholder votes appear to represent a dramatic shift in the way courts and shareholders plan to hold oil companies accountable in the face of a changing climate.
Court orders
The Shell ruling goes the furthest, demanding steeper cuts to emissions than the company had originally outlined. Like its European counterparts and unlike American companies, Shell has adopted a plan, including interim targets, for how it will reach net-zero emissions by 2050. But the plaintiffs in the Dutch case argued that Shell’s goal of a 20 percent reduction by 2030 didn’t go far enough and as a result violated human rights by shifting the majority of the burden onto later generations.
The rough outlines of the decision echo the outcome of a recent German court case in which the government was sued for punting on emissions reductions after 2030. In that case, the Constitutional Court ordered the German government to move more aggressively and detail emissions cuts between 2030 and 2050. Less than a week later, government officials announced that they had moved up the net-zero deadline by five years and set interim targets of 65 percent below 1990 levels by 2030 (up 10 percent from before) and 88 percent by 2040.
Other European oil companies like BP and Total have set emissions goals that reflect Shell’s. In the wake of the ruling, they may also find themselves the target of lawsuits. Shell has vowed to appeal, so the outcome of the case may be some years off. But the decision was a clear warning that oil companies should begin to take serious measures to reduce their emissions.
Board votes
The Exxon board vote sounded a similar warning. Hedge fund Engine No. 1, which Bloomberg reports as having no history of activism in oil and gas, put forward a slate of four candidates for the board. Their goal is to push the descendent of Standard Oil toward more investments in clean energy and to force the company to pare back new capital expenditures on oil and gas projects. Exxon spent $35 million to defeat the candidates and beat back the proposals.
Engine No. 1 was partly victorious thanks to votes from BlackRock, Exxon’s second-largest shareholder and the world’s largest investment manager, with more than $8.6 trillion under management. The firm has taken an increasingly aggressive stance on how companies it invests in should approach climate-related risks.
Two of Engine No. 1’s candidates won their elections outright, and the tally for a third was too close to announce. The new board members are Kaisa Hietala, former renewable products VP at Neste, a Finnish oil refiner, and Geoffrey Goff, former CEO of Andeavor, another oil refiner. The third candidate who may yet win is Alexander Karsner, a senior strategist at X, the Alphabet division.
In addition, Exxon shareholders approved two proposals aimed at increasing the transparency of the company’s lobbying efforts. One requires all lobbying expenses to be reported, and another requires the board to report on whether the company’s lobbying of lawmakers lines up with the Paris Agreement.
Chevron’s shareholders also voiced their displeasure with the way the company has handled environmental concerns. More than 60 percent voted for a proposal to reduce “scope 3 emissions,” which are produced when customers use the company’s products. For oil and gas companies, that’s a lot—much of what they sell goes up in smoke. Chevron’s own data suggests that its scope 3 emissions dwarf its direct emissions by at least an order of magnitude.
Separately, none of these decisions will make a significant dent in carbon emissions or do much to mitigate climate change. But taken together, they start to add up to something. And more broadly, they may represent a turning of the tide. Big oil and gas companies are coming under increasing scrutiny, and that situation looks unlikely to change any time soon.