2021 Lane Reports

Is Big Oil at a Tipping Point?

Thursday, July 1, 2021 9:00 am
by Marc J. Lane

Is Big Oil at a Tipping Point?

By Marc J. Lane

May 26 was a day of reckoning for Big Oil.

On that day a Dutch court ordered Royal Dutch Shell to slash its greenhouse gas emissions by 40% by 2030 after seven environmental groups successfully argued that Shell must be held to an “unwritten standard of care” to uphold human rights. The same day, a whopping 60% of Chevron’s shareholders, following a trend established at other shareholder meetings this year, recommended that the company reduce emissions both in its production process and in the products it sells to its customers. And still on May 26, Engine No. 1, a tiny activist investment firm which owns just .02% of ExxonMobil’s shares, won two seats on the company’s board. (A third new director would soon join Engine No. 1’s nominees.) The newly constituted board – with the backing of BlackRock, Calpers and a California teachers’ pension fund – is expected to shift ExxonMobil’s resources away from fossil fuels and toward clean energy, putting in play billions of dollars in shale, liquefied natural gas, refining and chemical projects.

Accountability is clearly on the way. Investors are increasingly frustrated with businesses that rely on burning fossil fuels for profit while so many of us are committed to hit net-zero greenhouse gas emissions by the middle of the century. And COVID-19, which froze air travel and sent oil prices plummeting into negative territory, reinforced the widely held belief that a business model driven by oil simply isn’t sustainable. So institutional investors managing more than $41 trillion in assets are loudly calling on world leaders to immediately step up their climate game if they don't want to miss out on a wave of clean energy investment. Even the conservative International Energy Agency demanded that there be “no investment in new fossil fuel supply projects,” in order to meet the urgent obligations of the Paris climate agreement.

Since the outbreak of COVID-19, the United Kingdom, the United States, Canada, Italy, France, Germany and Japan – the Group of 7 (‘ the G-7”), the world’s largest industrial democracies -- have committed $189 billion to support oil, coal and gas, and to offer financial lifelines to the aviation and automotive sectors, $40 billion more than has been directed toward renewable energy.

But the world is taking notice. The CEOs of 78 companies worth more than $2 trillion -- including Allianz, Biogen, Boston Consulting Group, Hewlett Packard Enterprise, ING, Salesforce, PepsiCo and Unilever – have pressed the G7 to work with the private sector on bold actions to address climate change. The executives have warned of massive economic losses if climate change isn’t successfully addressed, and have predicted enormous economic rewards should these major nations effectively transition to more sustainable economies. Not only did the business leaders successfully renew their call for national commitments at last month’s G-7 Summit to halve greenhouse gas emissions by 2030 and to reach net zero by 2050. Urged on by the CEOs, the G-7’s leaders also agreed to raise their contributions to meet thier overdue spending pledge of $100 billion a year to help poorer countries cut carbon emissions and cope with global warming. What’s more, the G-7 agreed to end almost all direct government support for fossil fuels and to phase out gasoline and diesel cars.

Earlier in the month,, the G-7’s finance ministers said they support requiring companies to disclose their climate-related risks in financial statements. Separately, more than 500 concerned investment firms, energy companies, green groups and climate scientists encouraged the Securities and Exchange Commission to compel all publicly traded U.S. companies to report their material risks from climate change. What gets measured gets managed, so a company that reports the impact of climate change on its bottom lines is likely to mitigate those risks by shifting capital away from coal-fired power plants and other high-carbon investments.

The stars are aligned: green economies are finally emerging, and we all have good reason to celebrate that reality.

The professionals at Marc J. Lane & Company, our investment affiliate, would be happy to evaluate your investment portfolio to ensure that it meaningfully reflects your social and environmental concerns. Please reach out to Marc Lane at 312-273-1040 or mlane@marcjlane.com for a confidential consultation.

 


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