By Susan Moran
As annual shareholder meetings rapidly approach, oil companies are feeling increased pressure from shareholders about climate change, and while a few are responding by edging in the direction of more transparently dealing with the issue, many continue to reject the shareholder requests outright. And none have revealed business plans that scale back on extracting the product that drives climate change.
Shareholders have continually put forward resolutions aimed at reducing greenhouse gas emissions, adjusting their business models and reducing methane releases. Investors are increasingly asking companies to align their operations to meet the Paris Agreement target of limiting global temperature rise to well below 2 degrees Celsius.
The world’s largest oil companies, including Exxon, Shell, Chevron, ConocoPhillips and BP, are responding to that pressure in varying degrees. Some are publicly supporting climate change-related resolutions, while others have vowed to block investors from voting on certain proposals.
For many fossil fuel giants, their stance is perhaps better measured by what they are doing behind the scenes to support or reject efforts by their investors to align their company business models with international climate goals.
Exxon has asked the Securities and Exchange Commission to block voting on several climate-related proposals this year.
The company succeeded in sidestepping a proposal that would have required the oil giant to set and disclose targets for reducing greenhouse gas emissions, but the SEC refused to allow it to block voting on two other proposals. One called for the company to create a new board committee to address climate change and the other asking it to more fully disclose political contributions to tax-exempt organizations, including trade associations and other 501(c)(4) or “dark money” organizations.
Chevron recently avoided a vote on a proposal calling on the company to disclose Paris-aligned emission-reduction targets. A separate resolution requesting Chevron to disclose how it will shift its business model to be in sync with the Paris Agreement will go to a vote this year.
“To give you an idea of how upset oil companies are about shareholder resolutions regarding climate change…and about how they [resolutions] are such a severe threat to the viability of the companies, they [the companies] have put millions into a dark-money coalition to get rid of these resolutions,” said Nell Minow, vice chair of ValueEdge Advisors, a corporate governance consulting firm.
Minow was referring to Main Street Investors Coalition, which, despite its name, was launched last year by the National Association of Manufacturers (NAM) to put the brakes on shareholder proposals involving climate change and other social justice issues. Exxon and Shell both have executives on NAM’s board of directors, as do other fossil fuel companies, including Devon Energy, Southern Company and Koch Companies Public Sector, a subsidiary of Koch Industries.
Further, the companies’ business plans as set forth for upcoming shareholders’ meetings show that none are planning to scale back the core business of extracting fossil fuels, despite increasingly urgent warnings from the Intergovernmental Panel on Climate Change that fossil fuel use must quickly decrease to avoid the most catastrophic climate impacts.
“The last IPCC and National Academy of Sciences reports show that right now is the time to act,” said Nicole Pinko, a corporate analyst with the Climate & Energy Program at the Union of Concerned Scientists. “These companies knew about climate change decades ago. Everyone’s playing catch-up now, saying they’re trying. But how much are they, really?”
According to the business plans the companies are putting forth, the answer is: not much.
The gap between what oil companies say about the Paris Agreement and climate change in general and what their actual business plans reveal is still generally wide.
“Global energy needs will rise about 25 percent over the period to 2040,” said Exxon in its ExxonMobil’s 2018 Outlook for Energy. “While the mix shifts toward lower carbon-intensive fuels, the world will need to pursue all economic energy sources to meet this need.”
Earlier this month at an analysts meeting, both ExxonMobil and Chevron said they plan to dramatically increase production of oil and natural gas from the most bountiful U.S. shale field, the Permian Basin.
BP and Shell recently announced their public support for shareholder resolutions asking their companies to create business plans in line with the Paris Agreement’s 2-degrees scenario. BP said in February it would also support a separate shareholder resolution calling for additional disclosure.
Shell became one of the first companies to address emissions associated with its products, in December, when it announced plans to reduce the carbon footprint from its energy products, not just its direct operations. It released its plans jointly with institutional investors, on behalf of Climate Action 100+ , an investor initiative aimed at ensuring the world’s largest corporate greenhouse gas emitters take necessary action on climate change.
For years shareholders have criticized fossil fuel companies for limiting their pledges to direct emissions resulting from their own operations. Companies have vowed to make their refineries and extraction processes less carbon-intensive, but they have not focused, nor disclosed data, on indirect emissions stemming from the use of their oil and gas products.
A company’s products release 10 times more emissions than their operations, according to Andrew Logan, senior director of oil and gas at Ceres, a sustainability nonprofit organization that works with investors and companies.
“The elephant in the room is their products,” said Logan. Neither BP nor major U.S. oil companies have vowed to set actual reduction targets associated with their energy products.
Shell took the plan a step further, pledging to link the targets to executive pay.
“This is a big deal, almost a philosophical shift in thinking, and it should put pressure on other companies,” said Logan of CERES, which runs the initiative.
Although investors praised Shell’s announcement, seven environmental and human rights organizations in the Netherlands recently filed suit against the oil giant over its business plan. he groups say the plan includes targets worded in such a way that the company could meet those targets without reducing emissions and without aligning with the goals of the Paris Agreement.
“In many ways this year versus last year companies are increasingly agreeing that climate risk is something they need to address,” said Lila Holzman, energy program manager at As You Sow, a shareholder advocacy nonprofit. “Investors need to reward positive steps in the right direction, but also to continue to pressure companies to move faster and continue to raise the bar across the board.”
Shareholders have also been exerting pressure on energy companies to monitor and mitigate their emissions of methane, a potent greenhouse gas emission that is a major component of natural gas. Methane releases occur when wells, pipelines, and processing equipment leak, as well as during flaring, the practice of intentionally burning excess gas.
The investor group Interfaith Center for Corporate Responsibility sent a letter to 61 major oil and gas companies last year, urging them to support stringent methane regulations and to push back against the EPA’s rollbacks.
Among the several methane-focused shareholder resolutions filed in the last couple of years some, including those at EOG Resources and UGI Corp., were withdrawn after the companies agreed to monitor and reduce their methane emissions.
In an apparent nod to investor influence, BP, Shell, Exxon and Equinor recently broke with the American Petroleum Institute to support tighter regulation of methane emissions. The trade association is opposed to methane regulation.
The companies’ call for tighter methane regulation is also an act of self-interest — one that allows them to continue production of their core products.
“They’re smart, if they want to continue drilling,” said Holzmanof As You Sow. “But at the same time the long-term planning that needs to be done is to shift away from fossil fuels and pursue energy sources that are low to no emissions.”
As impacts from climate change become increasingly visible, shareholders will likely continue to pressure oil companies to take more transparent, bold, and measurable action to protect both their investments and the climate. How companies respond to that pressure is yet to be seen.
Those who don’t heed the call may lose their business, not just their reputation.
“These companies should feel lucky that this [shareholder] engagement is happening,” said Robert Schuwerk, North American executive director of Carbon Tracker Initiative, a financial think tank related to climate change.
“If they don’t [engage with shareholders] they run the risk of being viewed as un-investable and ultimately collapse.”