The big oil companies Royal Dutch Shell and ExxonMobil both had terrible, horrible, no good, very bad days today in what could be a harbinger of things to come for the industry.
In Europe, a Dutch court ruled that Royal Dutch Shell must increase its emissions cuts ordering that the company must ensure its net carbon emissions were 45 percent lower in 2030 than in 2019. Essentially, the court ruled that Shell was partially responsible for climate change and had to clean up its act.
Meanwhile, in the U.S. shareholders handed a stinging rebuke to ExxonMobil in the form of a mini coup in the boardroom that would see two seats on the company’s board of directors, which oversees executive operations, handed to candidates nominated by a small, activist hedge fund, Engine No 1.
The result ends a bitter shareholder battle and is a sign that the days of investors’ acquiescence to the messaging from big oil executives could be over.
“Climate change is the greatest threat to our future. We believe change is necessary for companies that do not have a long-term strategy for a responsible transition to a low-carbon economy,” said the California State Teachers Retirement System, one of the largest pension fund investors in the U.S. in a statement. “While the ExxonMobil board election is the first of a large U.S. company to focus on the global energy transition, it will not be the last.”
The pension fund supported Engine No 1 in its proposed alternative slate of directors. So did the giant investment firm, BlackRock, the money manger with over $8 trillion in assets, which has been very vocal about the systemic risks that climate change poses to the global economy.
It’s hard to say which event will have a bigger impact on the oil and gas industry and on big polluters more broadly.
With the ruling against Shell, European courts are putting large polluters on notice that they can face legal consequences for their actions, as The Wall Street Journal noted.
“This case does open the door for challenges to other energy-intensive sectors,” Liz Hypes, an analyst at risk consultancy Verisk Maplecroft, told the Journal. It means that agriculture, transportation and mining, and chemical companies could be at risk, Hypes said.
Meanwhile, the shareholder uprising at ExxonMobil hits at the very governance structures on which corporate America is based.
“This is a landmark moment for Exxon and for the industry, and will accelerate needed change in the sector,” Andrew Logan, senior director for oil and gas at Ceres, which co-ordinates investor climate action, told The Financial Times. “Nothing focuses a director’s mind like the possibility that they might lose their job. Today that risk became very real,” he added.
Industry watchers believe that the shareholder vote could have significant implications for the entire industry.
“The events of today show definitively that many leaders in the oil-and-gas industry have a tin ear and do not understand that society’s views and the legal and political environment in which they operate are changing radically,” Amy Myers Jaffe, a professor at Tufts University’s Fletcher School who has advised energy companies. told The Journal.