Now that an activist group managed to get on the Exxon board and wants to shift the oil giant away from fossil fuels and toward renewables, Big Oil is staring its future in the face.
First published in June 2021.
On May 26, three of the world’s biggest oil companies — Shell, Exxon and Chevron — suffered separate blows that illustrated the speed at which mindsets are changing.
Shareholder are talking about climate change.
Investors are anxious about green energy.
And courts are saying someone’s got to do something about the way we’re polluting the planet.
It’s entirely in order to be hopeful we’re seeing the end of the old order. According to one analyst, the shareholder revolts over Big Oil’s future business model and the landmark court ruling in the Netherlands marks “the start of a new era” for the industry.
Indeed, it was pretty spectacular.
For a Dutch court to order Royal Dutch Shell to cut its carbon dioxide emissions by nearly half!
For a small, relatively new, activist investor group to win a seat (two seats actually) at Exxon Mobil’s boardroom table.
And for climate-concerned shareholders to force Chevron Corporation to plan out a way to cut emissions generated from the use of its oil and gas.
What does it all mean?
Is Big Oil being told that it should be something else entirely?
Big Oil is staring its future in the face and it looks a bit like Suncor Energy. The Canadian oil company’s recent five-year plan warned to expect “almost no growth and no new projects because of high regulatory costs.”
As Clark Williams-Derry, an oil analyst at the Institute for Energy Economics and Financial Analysis, put it, May 26 marks “the start of a new era for Big Oil. You can’t shrug this off as having had a bad day. This is all three largest supermajors taking it on the chin from shareholders or the courts.”
The implications are obvious.
The court ruling, which Shell says it will appeal, could mean the end of growth for the company. It’s on its way to the Suncor model of business. After all, the judge directed that Shell cut emissions to 45% below 2019 levels by 2030. Court rulings on big emitters mark one of the “expanding fronts” for oil companies to navigate, according to Will Nichols, head of environment and climate change at the risk-analysis company Verisk Maplecroft. “We can expect this case to embolden activists and pressure groups.”
To embolden activists further. Engine №1, the activist group that managed to get on the Exxon board, wants to shift the oil giant away from fossil fuels and toward renewables. And Chevron shareholders have ensured that their company will be responsible for the pollution its customers create when burning oil and gas. Mr Williams-Derry sees this as particularly significant — and difficult — and vert likely to result in Chevron’s exclusion from investment funds that say they comply with environmental and social governance principles (ESG).
Some say this means Big Oil will go the way of Big Tobacco. When cigarettes and cancer became inextricably linked, tobacco firms no longer grew as in the past, but they remained profitable.
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[This piece was originally published in Medium and re-published in PMP Magazine on 1 June 2021, with the author’s consent. | The author writes in a personal capacity.]
(Cover: Flickr/Public Domain Pictures. - Oklahoma Sunset Oil Rig. / Licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.)