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A year of unintended consequences
Global investors take their cue from Dutch activists, while green execs leave Shell.
A crucial argument between a group of Dutch climate activists and a global alliance of financial institutions worth some $50 trillion is unfolding in ways you might not anticipate. The world's biggest investors in Big Oil look set to adopt the demands of a feisty, home-grown campaign of activist shareholders in the Netherlands.
The Dutch group is Follow This, which cut its teeth by filing climate resolutions at the annual general meetings of Royal Dutch Shell. I’ve written before about both, here.
The world's biggest investors are the Climate Action 100+, a global alliance of institutional investors in the most polluting companies. Its members manage assets of almost $50 trillion and wield unrivalled influence over investee companies. BlackRock, the world's largest investor by asset value, joined their ranks a year ago next week.
The brainpower, technology and investment to slow global heating are readily available, but we all depend on Big Oil to curb emissions
This time last year, Follow This founder Mark van Baal and I wrote a new year's resolution published by Responsible Investor. Drawing on precedent from the Netherlands, our new year wish was for shareholders in oil and gas companies to vote for emissions targets aligned to the 2015 Paris Climate Agreement.
We warned, too, that the 'softly, softly' approach of CA100+ to engaging oil executives in the effort to stop the climate emergency risked unintended consequences. And so it turned out. But 2020 was a year of surprises, not least that a small group of principled people can exert unlikely influence on the words’s biggest investors. [Disclosure: I’m an active supporter of Follow This.]
This week Mark and I wrote another new year's resolution for Responsible Investor. Our piece considered the impact on oil and gas companies of investors’ demands for concrete plans to achieve the goal of the Paris Agreement to slow the increase in global temperatures. That means reducing greenhouse gas emissions to ‘net zero’ by 2050.
And this year we’re counting on recent statements from CA100+ which imply they're ready to do the right thing.
A growing body of investor opinion already incorporates environmental, social and governance factors - so-called ESG strategies - in their decision-making. In response, some of the biggest oil and gas companies are keen to persuade shareholders that they, too, will commit to net zero by reducing emissions caused by their products.
In 2020, oil majors including BP, Equinor, Shell and Total bowed to this pressure from shareholders by drafting new ‘net-zero by 2050’ scenarios.
The brainpower, technology and investment to slow global heating are readily available. Time is short, but the energy incumbents have the know-how, financial muscle, and market-making opportunities to rapidly scale the transition to renewables.
So what did Big Oil propose in their new plans to contribute to the Paris goals? More carbon emissions. Go figure.
The Dutch example
If only this were an exaggeration. It's not. In 2020, one oil major after another published new ‘net-zero by 2050’ scenarios – a goal that many institutions now accept is core to their fiduciary responsibility to the clients whose money they manage. But without exception, these net-zero "ambitions" have been penciled in for 2050.
Meanwhile, the same oil majors are inking the deals for more revenue from fossil fuels, which they expect to pay their way through the transition. Their response to plummeting oil prices and the Covid-19 pandemic has been to write-down stranded reserves that are no longer viable, ramp up investment in renewables, and simultaneously double-down on their highest-yielding prospects to bring new fossil fuels assets on stream - and with them, higher emissions, at least until 2030.
The proportion of non-governmental shareholders’ votes in support of concrete emissions targets reached 27% in 2020
Time and again, CA100+ responded to oil majors’ newfound climate “ambitions” with a show of public support that invariably failed to mention emissions targets aligned to the goals of the Paris Agreement. A string of joint statements by oil majors and CA100+ heralded ‘new’ strategies to reach net-zero, but actually obscured the transparency which can be a catalyst for change.
However well-intentioned, CA100+ has provided a fig leaf for inaction by Big Oil.
Not all CA100+ members condoned Big Oil’s non-committal plans. Some voted in favour of climate resolutions from Follow This which ask oil majors to set concrete targets for all greenhouse gas emissions for the short, medium and long-term to 2050. This minority is growing year on year, as more investors ask fossil fuel producers for proof of commitment to curbing emissions and embracing clean energy technologies.
Support for emissions targets recognises the hard truth that Big Oil needs a mandate from shareholders to switch course from its old business model of turning hydrocarbons into petrodollars. Only incumbents have the global reach to rapidly scale the transition to renewables while also reducing emissions in this decade - if they can be convinced of a business case for doing so.
Last year, a majority of the 10 largest institutional investors in the Netherlands – including CA100+ members Aegon, Achmea, MN and Nationale Nederlanden – voted for Follow This resolutions at the annual general meetings (AGMs) of Shell and Equinor.
Other CA100+ members including La Banque Postale Asset Management, Actiam and M&G swelled the proportion of non-governmental shareholders’ votes in support of the Follow This resolutions to 27%.
Although still a minority, these votes were intended to support oil and gas companies to do what needs to be done. Targets are the antidote to unintended consequences.
The serial shareholder rebellions have disrupted the ‘softly, softly’ approach of constructive engagement by CA100+. In September 2020, the global investors’ alliance issued a statement urging oil and gas companies to set concrete targets to reduce emissions.
Its new position embraced the best example from their own ranks, and brought the CA100+ into line with principles set out by Follow This since 2016.
The coming year will test whether the world’s biggest investors mean what they said in September, as Follow This resolutions again come to a vote at BP, Shell, Equinor and Total.
Read how it happened:
If the new commitment by CA100+ is translated into votes, it's logical and credible for the world’s biggest financial institutions to demand concrete targets to curb emissions - and to set the same standard for all oil majors.
Roll or jump? Green leaders leave Shell
National broadcaster NOS followed up on a story (paywall) leaked to the Financial Times about senior figures leaving Shell’s sustainable energy business - top mensen weg bij Shell.
The oil company is due to announce detailed plans in early 2021 to explain how it expects to achieve its goal to reduce carbon emissions to net-zero by 2050 - naar netto nul uitstoot van broeikasgassen.
The strategy had prompted “a wave of resignations” among clean energy executives, frustrated by the slow pace of the transition to sustainability - onvrede over trage overhang naar duurzaamheid, reported the NOS.
Some questioned whether anything would really change - vragen zich af of er echt wel wat gaat veranderen, a source told the FT.
Departees include the head of Shell’s solar, storage and onshore wind businesses, Marc van Gerven; Eric Bradley, from its distributed energy division; and a senior figure in the “energy, transition strategy team”, Katherine Dixon. They’ll be followed by Dorine Bosman, vice-president for offshore wind.
Other executives were on the point of departure, NOS reported - andere bestuurders zouden op het punt staan om weg te gaan. Did they jump or were they pushed?
A spokesperson for Shell linked the departures to a previously announced restructuring - de eerder aangekondigde reorganisatie, involving $22bn in asset write-offs (so far) and cutting its global staff from 9,000 to 7,000. The company said the availability of voluntary severance packages was a reason behind their departure - aan als reden voor hun vertrek.
In October, Shell announced plans to increase spending on sustainable energy from 11 percent to 25 percent of its capital investment, which would rise to $5 billion in 2021. As I covered in The price for getting clean, it’s also joined forces with Exxon Mobil and others to propose an offshore carbon capture and storage (CCS) facility at its empty Porthos oil field outside Rotterdam.
Energy experts are divided over whether fossil fuels producers should qualify as recipients of public funds for these first-of-a-kind projects, known as “greening” of the Dutch energy system - vergroening van de Nederlandse energievoorzieningen. Or SDE, for short.
CCS is an essential yet under-developed part of curbing emissions - and an innovative growth sector in which the oil majors hope to win a big piece of a new industry.
Meanwhile, the environmental organisation Milieudefensie is prosecuting Shell in a Dutch court to demand faster, steeper cuts in oil and gas production. A verdict from the first court will be announced in May 2021, but the case will almost certainly go to appeal and probably on to the Supreme Court.
Shell, Exxon Mobil and other fossil fuels producers want subsidies for carbon capture and storage: why?
A revolutionary court for the world
2nd Opinion welcomes guest writers. Special correspondent Douwe de Lange is working on a piece for publication next month charting the wider impact (for climate activism, judges and the separation of powers) of revolutionary decisions by the Dutch judiciary.