May 26 is a noteworthy date in the effort to halt climate change. On that single day, three of the world’s largest oil companies saw stunning rebukes from their shareholders and a court of law.
The commentary after these events demonstrates that people have become alarmed by the climate crisis and are demanding that oil companies acknowledge their culpability and shift their focus to renewable energy.
In this country a tiny hedge fund with the odd name Engine No. 1 managed to win three of the 12 seats on ExxonMobil’s board of directors. Despite holding only 0.02 percent of the shares, the hedge fund convinced a majority of shareholders to vote for its candidates over those backed by ExxonMobil’s management. One of the largest shareholders that sided with Engine No. 1 is BlackRock, the world’s largest asset management company. Its decision is of particular significance because its chief executive, Lawrence Fink, wrote in his annual letter to executives, “No issue ranks higher than climate change on our clients’ lists of priorities. They ask us about it nearly every day.”
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The Vanguard Group, an investment company geared more to individuals and IRA accounts than BlackRock, is ExxonMobil’s largest shareholder. Vanguard is best known for designing “index funds” to track stock market indices. Many readers of the Tribune may have investments in one of these index funds. Vanguard too voted for the candidates backed by Engine No. 1.
In addition to their concern about the climate, another motivation for these and other investors was improving ExxonMobil’s profitability. Among the major oil companies, it was doing the least to reduce its dependence on oil and natural gas. Investors look to a company’s future earnings. Its stock prices and profits have been declining for several years. In fact, ExxonMobil posted a $20 billion loss last year. According to The New York Times, ExxonMobil’s stock price has risen 45% since Engine No. 1 announced its challenge to the nominees from the management of ExxonMobil.
A few hours before this unprecedented shareholder revolt, the District Court in The Hague ordered the European energy giant Royal Dutch Shell to slash its carbon emissions by a net 45% by 2030 based on 2019 levels. The Court ruled that Shell has a duty to the citizens of the Netherlands to protect them from the consequences of global warming, especially rising sea levels.
The Netherlands is a country that began building its system of dikes in the 14th century to create arable land and hold the sea at bay. The Dutch are well aware of the threat to its country’s very existence from the consequences of global warming and sea level rise.
No one was surprised when Shell’s chief executive, Ben van Beurden, immediately announced that the court’s decision would be appealed. Perhaps recognizing that the company and his country might well be better off if it followed the court’s order, on June 9 van Beurden wrote “For Shell, this ruling does not mean a change but rather an acceleration of our strategy.” In plainer language he said that Shell was going to do this anyway, but now it will just do it a little faster.
Meanwhile, in California, 61% of the shareholders of Chevron voted in favor of a proposal to slash emissions generated by the use of the company’s products. The proposal is especially significant because it asks Chevron to reduce emissions from the products it sells, primarily gasoline. Although the proposal is not binding on the management of Chevron, the size of the vote reflects the growing frustration of its investors that the company is not doing enough to tackle the problems of climate change.
It seems to me that if all three of these oil companies are going to succeed in reducing their carbon emissions as board members, shareholders, and courts are demanding, they will need to express clear support for a carbon tax.
One of the best bills currently in the U.S. Congress is the Energy Innovation and Carbon Dividend Act (H.R. 2307). This legislation would put a price on carbon emissions and return 100% of the net revenue as a rebate to American families. This bill, endorsed by Citizens’ Climate Lobby, currently has 69 cosponsors in the House of Representatives including Mark Pocan of Wisconsin.
Unfortunately, despite his pledge to reduce greenhouse gas emissions by 50% by 2030, President Biden does not support a tax on CO2 emissions. Perhaps the unexpected events of May 26 will spur him to recognize that he needs to quickly change his position to meet that goal.