Defeats for Big Oil mark 'sea change' in climate battle - Financial Times

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Big Oil has been rocked by a climate reckoning.

International oil companies have laid out detailed plans to drive down carbon emissions. But stunning boardroom and courtroom defeats this week showed how powerful forces in society want faster change.

Shareholders at ExxonMobil, a titan of corporate America, backed a long-shot activist campaign to overhaul the company’s board, handing the new directors a mandate to push a more aggressive strategy to drive down emissions.

The vote on Wednesday came after a Dutch court ordered Royal Dutch Shell to accelerate and deepen its emissions cuts. Meanwhile, investors in Chevron defied management on a major climate vote, approving a measure for the company to set stringent targets on the emissions from the products it sells for the first time.

The actions show the increasing pressure on international oil companies to respond more aggressively to climate change, with broad consequences for energy supplies and energy investors.

It’s a historic vote that represents a tipping point for companies that are unprepared for the global energy transition

Assumptions about energy that were common a few years ago are being shredded. The International Energy Agency said in a landmark report last week that hitting emissions goals would require ending investment in new oil and gasfields. Threats to future oil demand were underscored by this week’s enthusiastic reception to the new electric version of Ford’s F-150 pick-up truck, a gas guzzler that reigns as America’s most popular automobile.

Scrutiny of Big Oil is building as governments around the world set out net-zero carbon emission targets ahead of international climate talks later this year. While most major oil companies had strengthened their climate policies, they still fell short of meeting the goals of the Paris agreement, according to new research from Carbon Tracker, a think-tank.

“This reflects a broad sea change. Political leaders, business leaders and clearly investors are all stepping up to address this climate emergency,” said Liz Gordon, executive director of corporate governance at the New York State Common Retirement Fund, which backed the activist campaign against Exxon. “It’s a big day.”

It was a particularly stunning defeat for Exxon, which gave up at least two board seats to nominees of a tiny shareholder named Engine No 1. The activist hedge fund launched its proxy fight in December and argued that the company’s focus on oil and gas development had put it at “existential risk”.

“It’s a historic vote that represents a tipping point for companies that are unprepared for the global energy transition,” said Aeisha Mastagni, a portfolio manager at the California State Teachers’ Retirement System, one of the country’s largest pension funds.

“The ExxonMobil board election is the first for large US companies focusing on the global energy transition,” she added. “It certainly will not be the last.”

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The activist campaign also tapped into investor disquiet about Exxon’s weak financial performance in recent years, which has lagged both its peers and the broader market.

Exxon’s chief executive Darren Woods mounted a strong defence of his strategy for the company during the proxy fight, arguing that the world would still consume substantial amounts of oil for decades to come and his company could profitably meet that demand even as countries look to cut carbon emissions.

But he also yielded to some of the activist demands in a bid to win over restive shareholders, adding new board members, pledging to slash spending on new oil and gas projects, disclosing for the first time emissions created by burning the company’s products and promising to increase spending on carbon capture and storage.

Woods, who retained his seat on the board in Wednesday’s vote, acknowledged the defeat, telling the Financial Times the company “heard shareholders communicate a desire for ExxonMobil to further its efforts” on improving financial performance and addressing climate risk. “We’re well positioned to do that,” he said.

Large investors are increasingly using their clout to bring carbon-intensive businesses into line on climate change.

BlackRock, whose boss Larry Fink has highlighted the asset manager’s push into sustainable investing over the past year, backed three of Engine No 1’s four nominees.

The vote “reflected our belief that Exxon’s energy transition strategy falls short of what is necessary to ensure the company’s financial resilience in a low-carbon economy”, BlackRock said in a bulletin explaining its decision.

This is one of those days that will be seen in retrospect as a day when everything changed

Shell’s courtroom defeat could also have far-reaching consequences. The ruling effectively creates a precedent whereby a court can decide on the corporate strategy of a major emitter of greenhouse gasses and force an overhaul of its business, analysts said.

“The court is basically saying that not only Shell, but the energy industry and corporate polluters worldwide will have to reduce oil and gas extractions, and reduce CO2 emissions,” said Joana Setzer, who focuses on climate litigation and environmental governance at the Grantham Research Institute on Climate Change and the Environment at the London School of Economics.

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The ruling dealt a blow to Shell barely a week after its annual meeting. While the majority of shareholders voted in favour of its energy transition plan, a growing number of investors want the Anglo-Dutch company to do more.

BP earlier this month also fended off shareholder calls to strengthen its climate targets, but it too saw support for the measure surge. On Friday France’s Total is likely to see a backlash at its annual investor meeting.

The defeats for Exxon, Shell and Chevron on Wednesday brought the sector’s climate challenge into sharp relief, analysts said.

“This is one of those days that will be seen in retrospect as a day when everything changed,” said Andrew Logan, senior director for oil and gas at Ceres, which co-ordinates investor climate action.

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May 27, 2021 at 11:00AM
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Defeats for Big Oil mark 'sea change' in climate battle - Financial Times

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