Big Oil loses carbon emissions showdowns to activists

This article was written by Jeffrey Jones and Emma Graney, and was published in the Globe & Mail on May 27, 2021.

Three of the oil industry’s biggest names attempted to face down activist shareholders and the courts, but were pushed by both on Wednesday to do more to limit their carbon emissions.

Royal Dutch Shell PLC, Exxon Mobil Corp. and Chevron Corp. were handed significant defeats over their approaches to fighting climate change.

A fourth, Canada’s Suncor Energy Inc., announced a longawaited target to achieve net-zero emissions by 2050 that put the oil sands producer’s ambition in line with the federal government’s commitment under the Paris Agreement.

Investors and the general public have demanded that the oil industry put its considerable weight behind the effort to limit the rise in global temperatures.

Shareholders – including the world’s largest fund managers – are also forcing companies to account for, and deal with, the risks they face in the global transition to cleaner energy sources.

“Obviously, there’s an enormous amount of attention focused on how we move forward,” Mark Little, Suncor’s chief executive officer, said in an interview. “I think it actually says people are wanting energy companies and oil producers to be part of the solution, and, quite frankly, I think there’s a lot of wisdom in that.”

“The oil industry globally deploys enormous amounts of capital, it has massive technical project execution and operational capabilities, so it’s hard for me to envision how the world actually achieves its ambition without industries like the oil industry participating in the energy transition,” Mr. Little said.

Suncor’s net-zero plan comprises strategies to meet an interim target of cutting emissions by 10 megatonnes a year by 2030. They include adoption of carbon capture, use and storage; production of low-carbon fuels and hydrogen; fuel switching in its oil sands operations; and renewable power generation, including wind energy.

Importantly, Suncor is setting company-wide CO2 targets rather than intensity goals. That’s a departure from most of its Canadian peers, which measure their emissions per barrel produced.

It is part of an overall operating strategy that emphasizes squeezing more financial return out of each barrel rather than relying on big gains in output to generate profit. Even with adopting the carbon-reduction technologies, Suncor is targeting percentage returns on investment in the “mid-teens.”

Elsewhere in the industry, a Dutch court ordered Shell to cut emissions by more than double its own target, and the ruling could have an impact in Canada. The

Hague District Court said

Shell has a duty of care to cut emissions and that its current plans are not concrete enough. The case was brought by Friends of the

Earth Netherlands, known as Milieudefensie, along with 17,000 co-plaintiffs and six other organizations, including Fossil Free Nederland and Greenpeace Netherlands.

Milieudefensie lawyer Roger Cox said in a statement that he expects the verdict to have a global impact. “People around the world are getting ready to follow our example and take oil companies to court,” he said, adding that the decision means oil companies will become more reluctant to invest in fossil fuels.

Kristen van de Biezenbos, an associate professor at the University of Calgary who specializes in energy law, said it was striking that the judge ordered Shell to reduce its planet-warming carbon emissions by 45 per cent by 2030 from 2019 levels – the kind of directive that would usually come in government legislation. The company had set a reduction target of 20 per cent.

With governments producing a lot of talk but not much action, she said, the ruling could signal a broader trend of the public taking its fight from the ballot box to the courts.

“That’s probably what we’re seeing now – this really growing consensus among many different stakeholders in large parts of the population that something needs to be done about climate change to curb emissions quickly,” she said.

Litigation isn’t the preferred way to spur action – it’s expensive and time-consuming, Prof. van de Biezenbos said.

But the courts have always played an important role in the modern-day environmental movement and, now, driving action on climate issues. The Dutch court system is very different from Canada’s, but a ruling like the one against Shell could inspire new cases against energy companies here.

“If you’re trying to make an argument in a Canadian context, you can’t say the same legal principle applies, but you can say respected jurists in other countries have found similarly,” she said. “That can be something that’s persuasive.”

The fear of being a target in such a case can also be a big motivator for change by major oil companies in particular, she said.

Shell Canada spokesperson Tara Lemay said in an e-mail that the action needed on climate change has driven it to accelerate efforts to become a net-zero emissions energy company by 2050, and invest billions of dollars in low-carbon energy, including electric-vehicle charging, renewables and biofuels. Still, Ms. Lemay said Shell fully expects to appeal the court decision, calling it “disappointing.”

The court announced its decision a week after the International Energy Agency’s Net-Zero by 2050 report called for an end to new oil and gas exploration and the immediate start of a phaseout of fossil fuels around the world.

And on the same day as the Shell ruling, Exxon Mobil Corp. shareholders voted to replace at least two of the company’s 12 board members with directors who are seen as better suited to fight climate change, bolster Exxon’s finances and guide it through a transition to cleaner energy.

The proxy contest, led by an activist fund called Engine No. 1, succeeded despite CEO Darren Woods’s campaign against the offensive. Mr. Woods said the company was already diversifying from fossil fuels, but warned moving faster would jeopardize profits.

The fund won over major institutional shareholders with its message that Exxon Mobil has failed to adequately prepare for the energy transition. It said companies “positioned to capture value in a decarbonizing world” were being rewarded by the market, while Exxon’s cost of capital was increasing.

Chevron shareholders, meanwhile, voted in favour of forcing the company to cut “Scope 3” emissions – those generated when consumers burn the fuels it produces. The vote did not mandate a specific target or timeframe.

Suncor’s Mr. Little said the day’s events show investors have become impatient over climate issues.

“It’s pretty clear that many shareholders are willing to have a fight over it if they don’t think you’re going fast enough. Or you can end up in the courts,” he said.

It’s pretty clear that many shareholders are willing to have a fight over it if they don’t think you’re going fast enough. MARK LITTLE

CHIEF EXECUTIVE OFFICER, SUNCOR ENERGY

Author: Ray Nakano

Ray is a climate activist living in the City of Toronto. He is a member of ClimateFast. He is a also a member of the Order of Inter-Being which follows the teachings of Thich Nhat Hanh.