Energy transition

Dutch Court Decision and Boardroom Shakeup Sound Stark Climate Warning for Big Oil

Victories by climate activists targeting Shell and Exxon Mobil have packed a strong punch. What does this foretell for the next round in the climate debate?

Source: Getty Images.

Two events this week—one in The Hague, the other in Texas—represent the latest sign that the climate debate between 'Big Oil' and many of its stakeholders is continuing to heat up. Netherlands-based Shell became the first oil company in history to be held legally liable for climate change. Meanwhile, ExxonMobil issued two board positions to a shareholder-activist investor, with a third not yet decided.

Reporting on these events, Reuters said they triggered a new sense of urgency for oil and gas companies to rethink their strategies as pressure rises from governments, investors, and activists. Rapid cuts in greenhouse gas emissions would force companies to quickly move away from oil and gas and pivot to new forms of energy. The news agency speculated that the landmark legal ruling could trigger similar legal action against oil companies around the world.

Earlier this year, Shell set out one of the oil and gas sector's most ambitious climate strategies, targeting a reduction in the carbon intensity of its products by at least 6% by 2023, 20% by 2030, 45% by 2035, and 100% by 2050 from 2016 levels. But the court ordered the company to slash its carbon dioxide (CO2) emissions by 45% by 2030 from 2019 levels. The ruling affects the Shell group and its suppliers and customers. The lawsuit was filed by seven groups and more than 17,000 Dutch citizens.

Shell said it was disappointed at the ruling and would appeal the decision.

“This ruling has negligible chance to survive appeals,” said Per Magnus Nysveen, of Rystad Energy.

“David” Infiltrates “Goliath’s” Board

In Irving, Texas, almost simultaneously with the court ruling in The Hague, the ExxonMobil annual shareholder’s meeting marked another first—the first big boardroom contest at an oil major with climate change as the central issue.

San Francisco-based investment firm Engine No. 1 won shareholder approval to place two of four candidates it had nominated onto ExxonMobil’s board. The two Engine nominees elected were Gregory Goff, a 64-year-old former top executive at Marathon Petroleum and Andeavor, and Kaisa Hietala, a former executive of Finnish oil refining and marketing company Neste Oyj. A third nominee, Alexander Karsner, was still in the running, according to ExxonMobil.

Engine No. 1 describes itself as purpose-built to create long-term value by driving positive impact through active ownership.

As of 21 May, according the firm’s annual report, it had $272 million in assets under management, including 917,400 ExxonMobil shares currently valued at around $51.2 million. Relative to the number of outstanding shares of Exxon Mobil, Engine No. 1 owns just about 0.1% of the company.

"It's a huge deal. It shows not just that there is more seriousness apparent in the thinking among investors about climate change; it's a rebuff of the whole attitude of the Exxon board," said Ric Marshall, executive director of ESG Research at New York-based investment firm MSCI.

Engine No. 1 successfully rallied support from institutional investors and shareholder advisory firms upset with Exxon for its weak financial performance in recent years. Among these were BlackRock, Exxon's second-largest shareholder, who agreed to vote for three members of Engine No. 1's slate, and the New York and California’s state pension funds.

In another sign of investor dissatisfaction with the oil giant’s approach to climate change, shareholders approved measures calling on Exxon to provide more information on its climate and grassroots lobbying efforts. "We are sending new board members, seasoned in managing change in the fossil fuel industry, to help put the company back on track," said New York State Comptroller Thomas DiNapoli.

Following the meeting, Darren Woods, ExxonMobil’s chief executive officer, said Exxon had heard shareholders’ desire to advance lower-carbon and cost-cutting efforts. “We are well positioned to respond,” said Woods, who had campaigned to convince shareholders to shoot down the board challenge and argued that the company was already advancing low-carbon projects and improving profits.

Elsewhere, climate advocacy groups placed resolutions calling for emissions cuts at Chevron, ConocoPhillips and Phillips 66.

What’s Next?

According to Reuters' estimates based on company presentations, oil majors’ spending on oil and gas will continue to dwarf spending on low-carbon and renewable energy over the next five years. The biggest gaps will be in ExxonMobil, Chevron, and Shell. The smallest gaps will be in Equinor, Eni, and Total

Oil and Gas Capex Gaps 2021–2025 (Cumulative spending, $billions)

CompanyOil & GasLow-Carbon and RenewablesGap