Big Oil is following in the footsteps of other big businesses and it wants the president of the United States to take steps to curb CO2 emissions. But the big pension funds are not letting up and are applying newfound financial pressures to ensure they live up to those words.
It is coming as Exxon Mobil Corp. is having its annual shareholder meeting at month’s end. The oil giant has already called the Paris agreement to try and keep temperature increases to no more than 2 degrees Celsius by mid Century an “effective framework.” The company, along with Royal Dutch Shell is asking the Trump administration to keep its seat at the table.
“Investors who feel that climate is a risk now realize they just have themselves to manage this risk in the next few years,” Edward Kamonjoh, executive director of the 50/50 Climate Project in Washington, in a Reuters story, referring to the White House’s efforts to put carbon cuts on the back burner.
The same story goes on to say that despite the Trump administration’s positions, some companies have been making changes without the need for institutional investors and shareholders to make those demands. It points to Wespath which on May 2 withdrew its call for Chevron Corp. to accept climate change and take steps to mitigate carbon; Chevon outlined in detail its approach to do so.
Natural gas, of course, has become a hot commodity and oil companies are exploring for it while they simultaneously drill for oil. Natural gas releases about half the CO2 as does coal and it is now just as abundant and just as cheap. Thus, it has become the fuel of choice for electric generators, meaning that big oil is cashing in on the trend. At the same time, natural gas liquids are used in the chemical and manufacturing processes.
For their part, the institutional investors are not about to let up. They control trillions of dollars and through the pension funds they manage.
Studies vary on whether shareholder activism is actually a productive way to drive change and to increase returns. One side argues that the goodwill generated by investing in cleaner energies is enduring and that it goes to the bottom line.
Others, though, say that fund managers should concentrate exclusively on building shareholder value — that such a tack is the best way to serve society. In other words, profitable companies spend money throughout their supply chains, which improves the lives and livelihoods of everyone they touch. Such a fine focus would make them better able to buy modern technologies and to build the most innovative power plants.
“Activism is highly focused, targeted and goals oriented,” says Richard Rudden, managing partner of Target Rock Advisors, in an earlier interview. “It brings the issues and stakeholder pressures directly to boards and managements for action.”
It is more advantageous to keep a seat at the table rather than to cut off any direct line of communications through divestiture, Rudden says. Nevertheless, if investors have authorized pension plan fiduciaries to make “socially responsible investments,” then they have a legal right to divest, or in the case of banks, to quit making loans to businesses that don’t meet such objectives, he adds.
While addressing climate change is vital, the value of fossils fuels remain high, say others:
“Over the past two centuries, fossil fuels have liberated most of the world’s population from short, brutal lives of grinding poverty,” adds Richard Bezdek, who is president of Management Information Services and who receives financial backing by the fossil fuel industry.
Bezdek goes on to say that both the International Energy Agency and the U.S. Energy Information Administration peg renewables in 2040 at only 15 percent of the world energy portfolio — certainly not enough to displace much of the gas-or-coal-fired electric generation.
The sustainability evolution, however, is occurring because activists, investors and regulators are uniting to make companies live up to higher standards. Those who espouse such shareholder activism maintain that their pursuits are adding corporate value and overall prosperity.
Major retailers and industrials that include Walmart, General Electric and Dow Chemical are leading the charge.
Walmart, for example, is the first retailer with an emissions-reduction plan approved by the Science Based Targets Initiative, in alignment with the Paris Climate Agreement in December 2015. It will use a combination of energy-efficiency measures and renewable energy to achieve an 18 percent emissions reduction in its own operations by 2025, it says. Additionally, Walmart will work with suppliers to reduce emissions by 1 Gigaton by 2030, equivalent to taking more than 211 million passenger vehicles off of U.S. roads and highways for a year.
“If sustainability is done right, there is a return on investment,” notes Neil Myers. founding principal at the consulting firm Williams Creek.
If Big Oil makes that choice, it is only a matter of time before others follow its lead.