Big money forcing Big Oil into climate change revolution

With the annual general meeting season now behind us, many oil majors have felt the heat from investors – most prominently BlackRock – or courts to put more effort into accelerating climate action.

During the past several weeks a combination of climate activists, investment funds, and courts have chipped in to pressure companies like ExxonMobil, BP, Chevron, and Shell to accept more aggressive plans towards environmental protection and strategies that would be in line with the Paris Agreement.

The names heard the most during the Big Oil annual general meetings were those of their largest shareholders, investment funds like Vanguard and BlackRock with the latter making a lot more noise. With that being said, it is worth taking a look at BlackRock’s deeds during the past few weeks.

The first large show of intent by BlackRock towards supporting climate change was the backing of climate activist firm Engine No. 1 – a tiny shareholder in ExxonMobil – and its intent to remove four board members from the supermajor’s board of directors and replace them with four nominees of their own, all with climate change as their main policy.

Namely, Engine No. 1 wanted to prevent the re-election of former MetLife CEO Steven Kandarian, former Caterpillar CEO Douglas Oberhelman, former IBM CEO Samuel Palmisano, and the former CEO of Malaysia’s oil firm Petronas Wan Zulkiflee Wan Ariffin.

With BlackRock backing them up, they intended to replace them with climate and renewables champions Gregory J. Goff, Kaisa Hietala, Anders Runevad, and Alexander Karsner.

This looked like a tall order, especially after ExxonMobil refused all four of the candidates nominated by Engine No. 1. But a massive win was on the cards for the activist firm. In a preliminary count, it looked as if the BlackRock support would give Engine No. 1 two seats on the ExxonMobil board but with a shot at more as some results were too close to call.

Later, the supermajor informed that re-elected ExxonMobil directors are expected to be CEO Darren Woods, Michael Angelakis, Susan Avery, Angela Braly, Ursula Burns, Kenneth Frazier, Joseph Hooley, Douglas Oberhelman, and Jeffrey Ubben.

Engine No. 1 nominees expected to be elected to the supermajor’s board of directors are Goff, Hietala, and Karsner. This meant that only Anders Runevad was not chosen to ExxonMobil’s board.

A massive win for a tiny company. But this is hardly where BlackRock stopped its climate agenda push with BP being the next in line.

The asset management firm is also a top investor in BP and backed a shareholder resolution calling for faster climate action at the company’s annual general meeting. For this resolution, BlackRock backed activist group Follow This which asked for the company to set deeper climate targets.

The Follow This resolution was ultimately rejected, but it did gather 20 per cent support and sent a signal that investors are getting behind the idea of BP accelerating its plan to cut emissions from its oil and gas production to net-zero by 2050, which will see it reduce oil output by 40 per cent by 2030.

At the time, BlackRock said it supports BP’s climate strategy but that it also supported the Follow This resolution because it was a means to progressively refine BP’s greenhouse gas emissions reduction targets.

Although backed by BlackRock, Follow This needs to be looked at separately. As with BP, Follow This – a group of over 6,000 green shareholders in oil and gas companies – was able to put forth a climate resolution on several more Big Oil AGMs.

The Dutch campaign group was able to score a hat-trick of wins as ConocoPhillips, Phillips 66, and Chevron all voted for the climate resolutions.

A proposal for new carbon targets from Follow This passed with 61 per cent of the vote at Chevron. The resolution will require the oil major to prove its climate targets are aligned with the Paris Agreement and to cover emissions in absolute terms.

The resolution was also accepted by ConocoPhillips with 58 per cent of votes. Phillips 66 voted for the resolution without disclosing the percentage, but a majority was needed.

Mark van Baal from Follow This said last month: “We believe that only concrete targets for all emissions will lead oil majors to the necessary shift in investments from fossil fuels to renewables.

“It is evident that the boards of oil majors do not move on their own initiative. Shareholders have to compel them to set targets and have to hold them accountable for meeting these targets.

“We thank the individuals within these institutional investors for their personal leadership. They are the real agents of change in the oil and gas industry.

“Big Oil can make or break the Paris Accord. Investors in oil companies are saying now: we want you to act by decreasing emissions”.

It is worth mentioning that some activist or advocacy firms, like Majority Action, were even more aggressive and asked for the removal of Chevron CEO Michael K. Wirth and lead director Ronald D. Sugar due to the company’s failure to set net-zero targets, align its capital investments with limiting warming to 1.5°C, or ensure its policy influence activities would support doing so.

Majority Action did not stop there as it also requested the ousting of Duke Energy CEO Lynn Good and lead independent director Michael G. Browning. Others are for the removals of Valero Energy’s Joseph W. Gorder and Robert A. Profusek, GoldmanSachs’ David M. Solomon and Adebayo O. Ogunlesi, as well as Berkshire Hathaway’s Warren E. Buffett.

On 26 May 2021, a Dutch court ordered Shell to deepen its carbon emissions cuts in a ruling described as the first-of-its-kind. The case was unique in that it was the first time for a court to order a company to comply with the Paris Climate Agreement.

In the ruling, the judge ordered Shell to reduce its carbon emissions by 45 per cent by 2030 compared with 2019 levels. The court also decided that Shell was responsible for emissions from customers (scope 3) and suppliers.

As a response to the court verdict, Shell pledged to take some ‘bold but measured’ steps to accelerate the reduction of carbon emissions from its operations.

In a way, this story of climate change goes back to its beginning with BlackRock again. This time, BlackRock was against the ruling. To clarify, BlackRock is not a large investor in Shell but as an investor in so many other massive oil and gas companies, it gave its opinion on the matter soon after the ruling was made public.

BlackRock told Reuters that a court ruling is not the way to solve the global decarbonisation issue and that it risks shifting the problem to private firms.

CEO of BlackRock Larry Fink said the ruling that requires Shell to deepen its planned greenhouse gas emission cuts was an example of a general attitude that failed to address the overall problem. According to him, the ruling will likely trigger legal action against other energy companies and force Shell to shed assets to comply.

“[The ruling] doesn’t change the global footprint, that’s not a solution. We are doing a lot of greenwashing because we are not changing the carbon footprint of the world. We may change the carbon footprint of a company.

“If we are sincere about the world having a net-zero carbon status in 2050, we cannot move these parts of the economy out of public entities into private hands. The net-zero world doesn’t change, but the company looks better“, Fink stated.

Shell CEO Ben van Beurden agrees with Fink’s assessment: “Society needs to take urgent action on climate change. But a court ordering one energy company to reduce its emissions – and the emissions of its customers – is not the answer”.