Big Oil faces test on climate
Investors seek assurances from Exxon, Chevron
WASHINGTON — As national governments around the world move to strengthen climate change policies, the country’s two largest oil companies face a critical test of shareholder confidence in whether they can adapt to the shifting regulatory environment.
On Wednesday, Exxon Mobil and Chevron each hold shareholders’ votes at their respective annual meetings in Dallas and northern California to assess whether they should take steps such as conducting financial analysis of climate change policies and putting climate experts on their boards.
The resolutions are largely symbolic, but if approved, they would show that shareholders want oil company boards and executives to more directly address climate change concerns in the way they do business.
The votes come at a
critical time for the oil sector, which is coming under increased political, regulatory and popular pressure to slow the pace of climate change even as it contends with the worst oil bust in a generation.
Last year, nearly 200 world leaders in Paris agreed to try to limit global warming to less than 2 degrees Celsius, and attorneys general from New York, California and the U.S. Virgin Islands have launched investigations into whether Exxon committed fraud in its public statements that discounted the impact of fossil fuels on climate change.
On Wednesday, protesters from several environmental groups are expected to demonstrate at the Exxon Mobil’s annual meeting to urge shareholders to support the resolutions and push the oil giant to take steps to address climate change.
“The company must strike a more appropriate balance on climate change, and we will be confronting Exxon with this challenge Wednesday,” said Sister Pat Daly, a Dominican nun from New Jersey who has protested at Exxon’s meetings for years.
Resolutions gain support
Oil companies have faced similar votes dating back to the 1990s, but in recent years the resolutions have gained increasing support.
Shareholders of European oil companies Royal Dutch Shell and BP both overwhelmingly passed resolutions calling on executives to analyze how their business plans fit in with climate change goals. Earlier this month, more than 40 percent of shareholders of Andarko Petroleum of The Woodlands voted yes on a similar proposal, up from 30 percent last year.
The Exxon and Chevron resolutions have been spearheaded by a group of investors that control more than $1 billion in shares and includes the New York State Comptroller, the Church of England
and the University of California Retirement Plan. Exxon and Chevron, however, are urging shareholders to vote down the climate initiatives, which are not binding but serve to give executives a sense of what strategies their shareholders want employed.
The two companies argue they are well aware of the potential impact of climate change policy on their business and are already factoring it in to their business decisions.
Exxon, for instance, says it is testing new drilling projects to determine whether they would remain profitable under schemes that would impose significant costs on each ton of carbon emitted by the fossil fuels.
Michael Webber, deputy director of the University of Texas’ Energy Institute, said he expects the oil companies can adjust to socalled carbon pricing measures.
“In the short term, my attitude is these are smart, nimble companies,” he said. “They’ll be fine, assuming the policies are designed in a rational way.”
A looming carbon bubble?
The oil companies also add that their businesses should remain healthy for at least the next couple of decades, since oil demand is expected to hold steady. A forecast from the International Energy Agency last year predicted that 75 percent of the world’s energy supply would still come from fossil fuels in 2040.
But in the longer term, if carbon emissions are further restrained or even banned, and if renewable technologies improve, then oil companies face the risk of the reserves upon which their value is based staying trapped underground — a concept investors have termed the carbon bubble.
Among the legions of environmental activists using stock ownership to try and leverage change within the oil industry, there is a strong sentiment that Exxon and Chevron are not prepared for what the activists consider all but inevitable.
One proposal put to Exxon shareholders this year would have the company shift its reporting on its reserves from barrels of oil equivalent to British Thermal Units, a measure of energy. Theoretically, such a move would put a priority on building energy sources other than oil.
“Unfortunately, the measure of oil and gas companies is their ability to replace their reserves,” Danielle Fugere, president of the activist group As You Sow Foundation, told reporters Monday.
“That system is now becoming a recipe for disaster,” Fugere said. “The Paris agreement settled any debate around the world’s intent to decarbonize.”