After a flurry of court and shareholder action that The Guardian declared a “cataclysmic day” for oil and gas companies and the Heated climate newsletter headlined as “a good day for life on Earth”, analysts are wrapping their minds around how much has changed for the fossil industry—and what’s next in the global push for faster, deeper carbon cuts.
Last week’s triple win—a landmark Dutch court decision against Royal Dutch Shell, and successful shareholder actions aimed at colossal fossils ExxonMobil and Chevron—came on the heels of the International Energy Agency’s landmark report a week earlier, calling for a 75% drop in global oil demand by 2050. [It also made last week the wrong time for The Mix to have declared a short publishing break, but we’re making up for it now.—Ed.] Now, the question is how much farther and faster the fossil industry will fall out of favour as concerns about carbon emissions and climate impacts hit the mainstream.
A single day “in which investors rebelled over climate fears and a court ordered fossil fuel emissions to be slashed has sparked hope among campaigners, investors, lawyers, and academics who said the historic decisions marked a turning point in efforts to tackle the climate crisis,” The Guardian writes. The final tally: A court in The Hague ordered Shell to cut its greenhouse gas emissions 45% by 2030, tiny activist hedge fund Engine No. 1 managed to win two seats on the Exxon board, and investors holding 61% of Chevron stock instructed the company to reduce the Scope 3 emissions that occur when its product is sent to customers and used as directed.
“It may be the most cataclysmic day so far for the fossil fuel industry,” 350.org co-founder Bill McKibben told The Guardian. “If you want to keep the temperature low enough that civilisation will survive, you have to keep coal and oil and gas in the ground. That sounded radical a decade ago. Now it sounds like the law.”
“This will be seen in retrospect as the day when everything changed for Big Oil,” said Andrew Logan, senior director, oil and gas at Boston-based Ceres. “How the industry chooses to respond to this clear signal will determine which companies thrive through the coming transition and which wither.”
“It wasn’t just a bad day for Big Oil. It was a great day for life on Earth,” added climate journalist and Heated publisher Emily Atkin. “It offered proof that fossil fuel CEOs aren’t the sole deciders of who gets to live and thrive on future planet Earth. They don’t have to want to change. Through various means, we can force them to.”
“Game-changer is an overused metaphor, but surely this is one,” said U.S. Environmental Defense Fund President Fred Krupp. “The policy environment for companies has already changed and will change more.”
“The rebukes signal that climate concerns, once confined to environmental activists and barely registering with some Washington lawmakers, have become mainstream thinking in C-suites and on Wall Street,” Politico writes. “The visible effects of climate change, action by governments, and shifting consumer sentiment are transforming the world in which companies do business.”
And after Wednesday, “the speed of events—taking place in an industry that typically measures change in decades—means that companies and even entire regions, including West Texas, will have to face a reality in which there will be less demand for their product.”
“There’s no going back,” said Rice University political science fellow Mark Jones. “There’s no going back to where things were for oil and natural gas.”
Shell has announced plans to appeal last week’s court verdict, which found that the company violates human rights by contributing to climate change and ordered it to increase its planned carbon reductions this decade from 20 to 45%. But Bloomberg Green says climate litigators are hatching new lawsuits based on their latest success.
“We are already supporting other organizations to set up similar cases in their countries,” said Donald Pols, director of MilieuDefensie, the Friends of the Earth chapter in the Netherlands. “This court case and verdict open a whole new approach to climate litigation, and because of its success it will be copied by other civil society organizations in the rest of the world.”
Bloomberg says Shell’s greenhouse gas emissions in 2019 hit 1.65 billion tonnes of carbon dioxide or equivalent—about the same as Russia, the world’s fourth-biggest carbon polluter. But companies hadn’t been formally bound to the carbon reduction pledges in the 2015 Paris Agreement, until presiding judge Larisa Alwin flipped the script.
“Companies have an independent responsibility, aside from what states do,” she said in her decision. “Even if states do nothing or only a little, companies have the responsibility to respect human rights.”
That finding “is big news for carbon emitters everywhere, not just in the oil industry,” said environmental lawyer Angus Walker, of London, UK-based BDP Pitmans. “This may spread from large emitters to small, and from the Netherlands to other countries, at least in terms of challenges, if not successful ones.”
With 1,800 climate lawsuits now on the books around the world—enough to need their very own database—Bloomberg says Alwin’s ruling “could have a powerful ripple effect, not least among its European peers including BP Plc and Total SE. Those companies have set similar emissions targets, which have also been criticized by campaigners for not going far enough.”
But if anything could match the impact of Shell’s court defeat, it was Engine No. 1’s stunningly successful campaign to replace two directors on the 12-member Exxon board. Even before the vote, the campaign had analysts openly speculating that CEO Darren Woods might not survive the challenge to his leadership (such as it’s been).
“It was a humiliating loss for Exxon, the Western world’s biggest oil company, made worse by the fact that the effort was championed by an activist [fund] with just a 0.02% stake,” Bloomberg Green writes. Woods “battled against the tiny fund for weeks, calling its nominees ‘unqualified’, and offering concessions just hours before the annual meeting. The board even held up the vote in a last-ditch attempt to secure more support.”
“Stopping the vote was a pretty desperate move and usually portends a result the establishment does not want to happen,” one former oil refining executive told the Washington Post. Exxon said it was counting a late surge of ballots, the Post writes.
But “it was to no avail,” Bloomberg says. “The climate movement is now so mainstream that the world’s largest institutional investors were willing to back Engine No. 1, a group of little-known activists who only established their fund six months ago, over one of the biggest titans in corporate America. BlackRock Inc., the second-largest holder of Exxon with a 6.6% stake, voted for three of the four new directors nominated by Engine No. 1, according to a vote bulletin published Wednesday. The asset manager said it was ‘concerned about Exxon’s strategic direction’ and could benefit from the addition of the new directors.”
Despite Exxon’s decades-long refusal to acknowledge and address the climate crisis, “companies with a market value of US$250 billion like Exxon rarely face, much less lose, shareholder battles. But stakeholders familiar with Exxon’s thinking said Wednesday’s defeat was years in the making due to ongoing weak returns,” Reuters writes.
“Institutional investors had grown frustrated with the company’s approach to the energy transition, trailing global rivals who promised big spending on power generation, solar, and wind. In addition, Exxon failed to recognize how the investment community had become more attuned to climate change issues.”
As a result, “sources familiar with the company’s strategy say Exxon was late to mount a defence against Engine No. 1, and even when it did, it concentrated on the threat to the company’s generous dividend. But analysts had for months cautioned that Exxon’s hefty indebtedness could put that dividend at risk, making its warnings of the fund’s intentions less threatening.”
“ExxonMobil worked very hard to lose this battle,” Robert Eccles, professor of management practice at Said Business School at Oxford University, told the news agency.
“Investors are waking up,” said Anne Simpson, a managing investment director at the California Public Employees’ Retirement System. “The sleeping giant maybe is stirring.”
For climate campaigners, the Exxon win carries three big lessons, says Guardian financial editor Nils Pratley: place climate arguments in a financial context, nominate serious candidates for director, and shine the spotlight on big investment houses that hold large blocks of company stock. “BlackRock ended up voting for three of the [four] Engine candidates, and Vanguard for two,” Pratley writes. “Between them, the two asset managers control about 15% of Exxon. If you can get that block on your side, you have a real shot at winning.”
Pratley notes that the Engine No. 1 directors are still a minority on the Exxon board, and the hedge fund never called for Woods’ resignation. So “any immediate change of strategic course for the supertanker may be minor.” New York Times reporters Peter Eavis and Clifford Krauss agree that “getting Exxon, a behemoth company with $265 billion in revenue in 2019 and oil and gas fields around the world, to switch to cleaner energy will be a years-long and difficult process. It is unlikely to produce quick returns and could sap profits for a while as the company spends a small fortune to retool itself.”
“Two votes on a board of a dozen directors doesn’t win the day,” Dan Becker, director of the Center for Biological Diversity’s Safe Climate Transport Campaign, told the Times. “Will it change everything? Probably not quickly.”
But fossil veterans said the win will embolden climate campaigners to push for more. “This is an example of the domino theory,” said Jorge Piñon, a former Amoco and BP senior executive now teaching at the University of Texas at Austin. “One piece has fallen and you will see others follow. Exxon and Chevron are going to face quite a bit of pressure that in my opinion they are not going to be able to withstand, and they will have to give in to new demands.”
The Times has more on Engine No. 1’s “cautious and modest” approach to trying to shift Exxon’s corporate culture.
The day before the vote, Ceres’ Logan said a win for Engine No. 1 could spell trouble for the executive at the company’s helm. “I don’t see how Darren Woods remains as CEO if one of the dissidents, let alone all four, are elected,” Logan told Bloomberg. “It would be such a sign of fundamental dissatisfaction with the status quo that something would have to change. And that starts with the CEO.”
A couple of news reports are contrasting last week’s result with the much easier ride Exxon was enjoying as recently as five years ago. “Exxon’s engagement with environmental activists was once characterized by a sense of bemusement—under former CEO Lee Raymond, Greenpeace protesters outside its annual meetings were offered doughnuts,” Bloomberg writes. “But as worries about climate change have gone mainstream in the investment world, the clash has evolved into a confrontation over boardroom seats.”
Bloomberg’s pre-vote round-up has more on investors’ dissatisfaction with Exxon’s business strategy, and the colossal fossil’s dismissive response to Engine No. 1’s nominees.
