“US oil companies still don’t believe climate change will precipitate meaningful federal GHG [greenhouse gas emissions] regulations. That may be true in the US if Trump gets re-elected, but the rest of the world buys this commodity and low carbon laws and regulations are proliferating globally,” said president and chief counsel Danielle Fugere of US shareholder advocacy non-profit As You Sow.
It’s a familiar story: how slow the US has been to react in comparison with Europe, both on the corporate and political sides.
But things are picking up on the finance side (the subject of a later column), according to Fugere and the group’s energy programme manager, Lila Holzman.
“We’ve been engaging the oil and gas companies for years,” said Fugere, “it’s work that started right after the issue of stranded assets was raised in the Carbon Tracker report called ‘Unburnable Carbon’. Since then, we’ve been asking companies to transition, including setting net zero emission reduction goals. European companies are moving faster than US companies because their agencies recognise climate risk and have taken legislative and regulatory action.”
"Shareholders must look behind the curtain to understand what a company is really doing"
Holzman pointed up a major stumbling block, however: “The difference here is also the scope of the targets. US companies don’t think Scope 3 emissions are their responsibility, while European companies are starting to address this.”
On commitments more widely, Fugere said: “Emission intensity commitments are good, but they need to be couched within a framework of science-based targets in which the entire industry’s emissions are accounted for and are being reduced.
“Without such grounding, a company like Shell could reduce the carbon intensity of its production by investing in renewables, while also increasing production of oil and gas. Shareholders must look behind the curtain to understand what a company is really doing. Once these GHG commitments are made, it becomes more and more difficult not to act on them, especially as credit starts tightening. GHG reduction targets are also important from the perspective of regulators; if even the fossil fuel companies admit there is a climate problem and pledge reductions, it becomes more possible for regulators to act accordingly.”
And talking of looking behind the curtain, Fugere said: “If you look at Exxon’s advertising you might believe that its biofuels from algae are going to change the world. But over decades, Exxon has invested relatively little in biofuels compared to what the company is investing in fossil fuels. That disparity is telling.”
Referring to recent US Securities and Exchange Commission (SEC) decisions to block climate-related shareholder proposals – As You Sow is an assiduous and successful filer of resolutions on behalf of its shareholder clients – Fugere was especially dismissive of the agency’s stance. “The Trump SEC has ruled that shareholders can’t ask for targets in a shareholder resolution,” she said. “Shareholders may not be able to ask for targets in a resolution but they are certainly asking for targets in engagement meetings and telling companies that, in a competitive marketplace, you are not likely to be first in line for investment dollars when there are plenty of other companies that are taking strong climate action.”
Stressing the significance of being first in line for investment dollars, Fugere noted that shareholder initiative ClimateAction 100+ had just come out with a net zero benchmark signalling that investors with $47 trillion in assets under management expect these companies to set net zero targets. “The benchmark will help investors compare companies with one another with regard to meaningful climate action and risk reduction,” she said.
While As You Sow has been fairly dismissive of the US Business Roundtable’s (BRT) Statement on the Purpose of a Corporation, it was more encouraged by its recent statement on addressing climate change. Fugere said: “The Business Roundtable statement on climate recognises that the world is changing and there is less money to be made in a world battered by climate-related impacts. It provides more concrete measures than BRT’s prior stakeholder statement. Yet, while it reflects the extent of the climate problem and the need for action, we believe it relies too extensively on governments to compel action. At a minimum, it may mean that fewer of its members are openly lobbying against actions to address climate change.”
I noted that while BRT members may be slowing down on lobbying against climate action, the US Chamber of Commerce is continuing to fight against any action to slow down greenhouse gas emissions. Does it reflect their different memberships?
“Our understanding is that the Chamber is highly influenced by the larger oil and gas companies,” said Fugere, “which want to kill every climate regulation. Even methane regulations haven’t been preserved.”
Returning to the blinkered behaviour of the US oil majors, she added: “It’s not as if Chevron can change the world around it; this is truly a mindset problem. Exxon is deteriorating before our eyes; it’s a big company so it’s going to take a while, but it does not seem to understand what’s going on given its highly insular culture. Its returns are falling, its debt is growing, and its share value is deteriorating yet it continues to invest massive amounts of capital in fossil fuels. The company is an efficient producer, but it will never be able to find and produce oil cheaper than many of the national oil countries; in a world with declining demand, Saudi Arabia will always undercut them.”
Pointing to a potentially greater problem, not of finance, but of reputation, Fugere added: “It’s only in the last year or so that there have been any real questions about the value of Chevron and Exxon from retail investors who had the continuing expectation that, even if the stock is down now, it will go back up. That expectation is beginning to change. When you see retail investors questioning these companies, you know there are serious problems.”
But it’s not just retail investors who might be divesting. “Many investors that we work with, for example ICCR members,” said Fugere, “are no longer interested in engaging oil and gas companies – they’ve sold their stocks. Investors are moving on for a host of reasons, including that many have a fiduciary duty to invest in stocks that give them the best returns.”
Another concrete problem with change is how many large asset managers and investors hold stocks; Fugere said: “Here in California, CalSTRS and CalPERS [two of the largest state pension funds in the US] are mandated to invest a certain amount of their portfolio in indices, those requirements may need to change to reflect the economic reality of climate change and the risk it poses to investments. The new DOL [US Department of Labor] regulations require fund managers to look only to the bottom line, but if you’re investing in an index that includes oil and gas and it’s underperforming, and there’s an ESG index that doesn’t have fossil fuels, then your fiduciary duty would dictate that you invest in the oil and gas free index. Not because it creates social value, but because of economic value.”
Holzman noted two other important areas of As You Sow’s climate work – engaging with utilities and the Just Transition, a framework developed by the trades unions to secure workers’ rights in the shift to a sustainable economy. “We also engage with a lot of utilities,” she said, “and a lot of the work we do with them is encouraging them to move to renewables, and to give renewables an unbiased look. Their go-to is to build large fossil fuel power stations but we need to get them to acknowledge that gas might make sense right now, but any such asset that has a more than 20-year lifespan is going to be stranded.”
And on a just transition, Holzman pointed to one of climate action’s many complications. “It’s worth mentioning that there is a greater focus from investors on the just transition, on equity issues in work, for example, and that not all renewable jobs are created equal. There are supply chain problems with renewable technology, for example, so we’re cautious not to paint anything as a silver bullet.”
Finally, Fugere expressed her frustration at the intransigence of US oil and gas. “Five years ago, we had intense conversations with the sector about technological advances,” she said, “and how possible it is to stop most venting, flaring, and leakage [of methane and other polluting gases released during extraction]. Yet it still occurs at unacceptable levels. Companies often complain to shareholders that they don’t have the technology to capture the gas, but that is not an excuse. Every company is getting its product out successfully; some of that infrastructure can and should be used to reduce its emissions.”