The last week of May 2021 was momentous in the energy transition, especially in the oil and gas sector. It was a week that truly demonstrated that we have entered a new era of corporate governance oversight and public expectations. These developments were focused, of course, on the energy transition and climate change.
Perhaps the biggest attention-grabber was the news from the Exxon Mobil Corp. Annual General Meeting where a shareholder proxy challenge successfully added two members to the corporate board who were put forth not by Exxon, but by investment firm Engine No. 1.
The company announced that Gregory Goff, former CEO of the independent refiner Andeavor, and Kaisa Hietala, former executive of Finnish energy company Neste Oyj, along with eight Exxon Mobil Corp. nominees, had been elected to the board. The company also announced the successful passage of two shareholder proposals requesting reports on lobbying and climate lobbying.
During the same week, 61% of Chevron’s shareholders backed a proposal, opposed by its board, calling on the company to reduce its Scope 3 greenhouse gas (GHG) emissions, or emissions it does not directly control but which result from its value chain, including the use of the fuel it produces. The resolution did not provide specific details on reduction amounts or deadlines.
Additionally, a Dutch lower court ruled that Royal Dutch Shell must reduce its GHG emissions by 45% from 2019 levels by 2030, despite existing ambitious targets to reduce carbon intensity by 20% by 2030, 45% by 2035 and 100% by 2050 (all from 2016 levels). While that decision may get overturned on Shell’s appeal, it is potentially a harbinger of things to come and certainly emboldens future potential litigants in Europe and beyond.
Also last week, Shell announced its decision to sell its 50% interest in the 340,000 barrel per day (bpd) Deer Park, Texas, refinery to a subsidiary of Mexico’s national oil company Pemex. The same week, Shell announced the sale of its 90,000 bpd Mobile, Ala., chemical refinery to Houston-based Vertex Energy.
This follows Shell’s announcements earlier this year of its intent to shut down its 211,000 bpd Convent, La., refinery after it was unable to find a buyer and the sale of its 149,000 bpd refinery in Puget Sound, Wash.
Collectively, these announcements are a huge repositioning of Shell out of the North American and global refining business and a major effort to reduce it global GHG emissions footprint.
Meanwhile, shareholders at Halliburton rejected the company’s proposed executive compensation plan in an advisory motion, despite the fact that shares of the oil field services company have risen 18% year-to-date amid a recovering exploration and production sector. While this move cannot be directly tied to GHG emissions or ESG factors, it is in line with an overall trend by shareholders of fossil energy industry companies, who are more apt to act on concerns around executive performance in the sector overall.
The wave of shareholder activism and divestiture actions in late May took place in the wake of a controversial International Energy Administration (IEA) report that produced a roadmap for net-zero CO2 emissions in the energy sector by 2050. The report makes a number of assumptions regarding the ability of the world to quickly install renewable energy capacity very rapidly.
In doing so, it ignores the fact that most of the planned projects for bringing energy to the developing world over the coming decades will come from fossil energy, primarily coal, and that the most likely substitute for coal generation in the developing world will come from natural gas, which has proved thus far to be the most effective baseload generation source for reducing greenhouse gas emissions.
The report calls for no new investments in oil and gas projects, predicting that a tripling of renewable energy generation will occur by 2030. Interestingly enough, the report states that OPEC would gain over 50% of the global market by 2050, the largest share it has ever held.
Japan and Australia have objected to the IEA report’s findings. Others have rejected it as a mere scenario on a piece of paper that ignores realities such as the need for much of the developing world to enjoy the benefits energy has brought the people of the developed world for decades.
Another fascinating trend is the attention given to energy use and climate impacts related to cryptocurrency. More specifically, there has been a heightened focus on the energy portfolio of bitcoin miners in China, which currently is the source of about two-thirds of the world’s bitcoin mining, with the carbon footprint of that mining coming under fire in recent weeks.
Most of China’s energy applied to bitcoin mining comes from coal, a fact only recently became widely known among bitcoin enthusiasts.
Bitcoin’s carbon footprint caused supporter Elon Musk to change his tune about the cryptocurrency, based in part on GHG emissions factors. He has since made positive comments about rival cryptocurrency dogecoin, which has put forth a plan to utilize the heat manufactured from its mining for beneficial use.
The net effect has been a drop in the value of bitcoin and other cryptocurrencies. Meanwhile, the Texas Legislature has passed a law to provide a regulatory framework for cryptocurrency in the state as developers look at how to use the state’s vast renewable energy and natural gas resources to provide a lower carbon source of currency mining.
It is too early to determine the long-term implications of all these developments, but it is clear that activist shareholders and NGOs are increasingly successful in their actions at the board level. Climate activism is even driving the value and mechanics of modern financial instruments like cryptocurrency.
It is likely that these and other shareholder actions will help fuel efforts to pass climate-related legislation and regulations and create great pressure for climate and ESG disclosure, both voluntary and perhaps mandatory.
Jack Belcher is a principal of Cornerstone Government Affairs' Advisory Services and advises energy, transportation and financial services clients on government relations, regulatory affairs, risk management, ESG management, coalition building and stakeholder relations. He is also managing director of the National Ocean Policy Coalition.
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