Three of the world's largest publicly owned oil companies on both sides of the Atlantic faced a reality check last week: Take responsibility for your pollution that causes climate change — and cut that pollution faster.
It’s not necessarily a Big Oil takedown, but it is a wake-up call. And not just for Big Oil.
This investment moment is as dramatic to me as the day in 1990 when news broke that Nelson Mandela would be released from prison after 27 years. Announced out of the blue by President F. W. de Klerk to an incredulous South African population, including me — indoctrinated for years that Mandela was a "terrorist" — suddenly the world had changed.
What so many around the world had demanded was done. Despite intransigence wrapped in fear-stoking propaganda (not too dissimilar to Exxon on climate pollution), decades of pressure via moral, legal and financial arguments finally had delivered history. It was disorientating and hopeful. It also did not instantly fix the many challenges then, and those yet to come.
This is what this moment feels like to me.
What stakeholders want
In the space of hours May 26, the narrative for the hydrocarbon sector changed forever.
Royal Dutch Shell was instructed by a Dutch court to cut its pollution by 45 percent by 2030, including its Scope 3 emissions, meaning pollution of customers using Shell’s products. At Chevron’s annual general meeting, 61 percent of shareholders voted for more climate pollution cuts. (More on the significance of that from Joel Makower.)
This is more than a Big Oil story. Indirectly, the narrative for every portfolio company changed, too.
Exxon delivered the most drama. The tiny activist investor, Engine No.1, with $250 million assets under management, succeeded spectacularly. Charlie Penner, who leads investor engagement there, led a six-month, $30 million proxy voting campaign to replace several Exxon board directors.
Engine No.1 leveraged years of disenchantment with Exxon’s obdurate board to earn support of the three largest U.S. retirement plans (CalSTRS, CalPERS and New York State Common) as well as mega-investors State Street, Vanguard and BlackRock. (Kudos to BlackRock for getting "louder.") In the end, at least two candidates it put forward were elected to Exxon’s board.
The Exxon vote was significant because it overcame company supporters (hedge fund D.E. Shaw and many other investors sided with Exxon, returning eight directors as of this writing) and came after two antagonistic actions from U.S. political and investor stakeholders: Republican-controlled southern states threatened to ban from state business any banks and investors who exit fossil fuels; and Warren Buffet, who controls one-third of Berkshire Hathaway voting shares, helped defeat a shareholder resolution on climate change. The Oracle of Omaha argued, without evidence or irony, "We’re going to need a lot of hydrocarbons for a long time and we’ll be very glad we’ve got them, but I do think that the world’s moving away from them."
Bigger than Big Oil
This is more than a Big Oil story. Indirectly, the narrative for every portfolio company changed, too. This is firstly a rebuke of every company’s greenwashing, as science writer Ketan Joshi explained. It has chastened the work of shareholder engagement: Church of England Pensions Board (and co-lead for the $54 trillion Climate Action 100+ engagement with Royal Dutch Shell) had backed Shell’s "Just Transition Strategy." It was grist for those arguing divestment or nothing, despite that the three mega-investors’ benchmark-tracking passive products cannot selectively discard certain stocks.
The unexpected catalyst was the International Energy Agency’s Net Zero by 2050 report, which stated, "From today, no investment in new fossil fuel supply projects, and no further final investment decisions for new unabated coal plants," and was cited in the judgment and rationales by Exxon and Chevron investors. The energy industry’s own analysis reverberated across every industry.
If the dirtiest sector’s own think tank mapping pathways to net zero says new fossil-fuel investment must stop, what does that imply for every other sector’s 2050 pathway and investments?
The implications for non-energy sectors are significant. ShareAction, a "responsible investment NGO," evaluated 70 global insurers and found 11 insurers have net-zero targets for their investment activity, but only two have net-zero targets for their underwriting business. U.S. companies performed poorest of all. In April, CDP reported just 84 of 332 firms disclosed their financed emissions in 2020. The majority disclosed information relating to less than half of their overall portfolios.
The new paradigm for asset owners and managers is harder: What ways of doing business do you stop allocating capital to in order to meet the goals of the Paris Agreement? All investment decisions have ESG factors implicit but companies still mask material risks.
But not for long: The U.S. SEC’s public consultation closes June 14; more climate and ESG disclosure regulation is forthcoming.
After May 26, every board — not just Big Oil — knows the answer to Alec Baldwin’s character’s question in the 1992 movie "Glengarry Glen Ross": "Have I got your attention now?" Every company board needs better answers: What is our climate pollution performance? And how fast does it go to zero?
Mandela’s release meant we all could benefit from his remarkable humanity. His was a "Long Walk To Freedom." Last week was a small step; antagonists are ready to interrupt the journey. Nevertheless, maybe now we have reasons to be hopeful in this century, too.