Shareholders’ key role in fighting climate change
Shareholder activism has a long history in commodities. In the early 17th century, Isaac Le Maire, grain trader and disgruntled former governor of the Dutch East India Company, attempted to break the company’s monopoly by speculatively trading its shares.
His scheme failed, but Le Maire’s desire to shake up the status quo of the trade route between Europe and India eventually led to the discovery of Cape Horn.
Skip forward 400 years and shareholder activism in another Dutch-origin resources giant has taken on a less selfish hue.
In December, the Church of England, along with other investors in Shell, helped to persuade the energy giant to commit to setting targets to cut its carbon footprint by 20 per cent by 2035 and half by 2050. The company’s achievements in reducing carbon emissions is to be linked to executive pay, subject to a shareholder vote in 2020.
The commitment by Shell came in the wake of a startling special report by the Intergovernmental Panel on Climate Change, published in October. The report, commissioned following the 2015 Paris agreement, charts the consequences of a 1.5°C rise in global temperatures from pre-industrial levels.
The Paris agreement commits signatories to taking action to limit temperature rises “well below” 2°C, although many poorer and low-lying coastal countries felt this did not go far enough, and wanted an agreement to limit rises to 1.5°C. Global temperatures have already climbed by about 1°C since pre-industrial times.
The significant findings of the IPCC special report are that serious environmental changes occur at lower temperatures than previously thought and, while more damaging than a 1°C rise, 1.5°C represents a more habitable planet than 2°C.
One important factor in these changes is the potential feedback loops at critical trigger points, for example, the thawing of the northern permafrost, or melting of large sections of polar ice caps.
Such events would release large amounts of additional greenhouse gases, or lead to large rises in sea levels. They could create feedback loops in the global climate system, locking in further heating of the planet.
So far, so terrifying. But there is more.
Current commitments by national governments are expected to lead to about 3°C of warming by 2100, with further warming beyond that date. The IEA said in its latest World Energy Outlook that CO2 emissions under planned policies are on a slow upward trend to 2040, and are “far out of step” with what is needed to tackle climate change.
The IPCC says staying within a 1.5°C rise requires “rapid and far-reaching transitions in energy, land, urban and infrastructure (including transport and building), and industrial systems” that are “unprecedented in terms of scale, but not necessarily in terms of speed”.
On the current course, global warming is expected to reach 1.5°C between 2030 and 2052. Limiting temperature rises to 1.5°C requires a 45 per cent reduction in anthropogenic CO2 emissions (those produced by human activities) by 2030 from 2010 levels, and net zero by 2050, according to the IPCC report.
Agricultural companies’ businesses could be devastated by climate change, with crop yields potentially falling, and harvests failing more often. And energy giants could find themselves owners of billions of dollars of stranded assets, should climate change come to be taken seriously enough to keep fossil fuels in the ground.
As pressure mounts on the energy industry to change, both from governments and from shareholders, we may yet see more companies taking a lead on climate change policy.