Climate Governance at an ‘Inflection Point’ for Big Oil
By April Hall

In the matter of 24 hours, ExxonMobil lost at least two board seats (UPDATE: Engine No.1 gained three seats) to activist investors, Chevron shareholders pushed for that company to reduce its emissions and a district court in The Hague ordered Royal Dutch Shell to reduce its emissions by nearly half by 2030.

Some analysts called it crushing for the companies and others called it a victory for the environment.

Anne Simpson, managing investment director for Board Governance & Sustainability for CalPERS and one of Time magazine’s “15 women leading the fight against climate change,” says Wednesday’s developments — along with the International Energy Agency’s report “implying an end to investment in fossil fuels” — Could be the “inflection point” for climate risk.

“The pattern of events shows the financial markets, civil society and policy makers working to address the multifaceted risks and opportunities of the energy transition,” Simpson says. “We will need all three to work in partnership with companies to drive change at the scale and pace required.”

Exxon chair and CEO Darren Woods said the new directors are indicative of how shareholders want the board to act on climate risk.

“We welcome all of our new directors and look forward to working with them constructively and collectively on behalf of all shareholders,” Woods said. “We’ve been actively engaging with shareholders and received positive feedback and support, particularly for our announcements relating to low-carbon solutions and progress in efforts to reduce costs and improve earnings. We heard from shareholders today about their desire to further these efforts, and we are well positioned to respond.”

Simpson manages a fund that includes is Climate Action 100+, a global investor alliance of $40 trillion driving business action on climate change. She says the alliance is responsible for $54 trillion and Exxon, Chevron and Shell are on the group’s focus list as “systemically important carbon emitters” targeted for governance, targets and disclosure improvement.

It was other activist investor firm that initiated the proposals for Exxon and Chevron. Engine No.1 with just .02% ownership, but the power to harness enough Exxon shareholders to elect two directors handily with a third seat still too close to call.

More than 61% of Chevron shareholders followed European activist group Follow This to vote in favor of a proposal to cut so called "Scope 3" emissions.

The suit in The Hague, filed by a number of climate risk activists including Greenpeace and Friends of the Earth Netherlands, accused Shell of threatening human rights by investing billions in the production of fossil fuels.

"The court orders Royal Dutch Shell, by means of its corporate policy, to reduce its CO2 emissions by 45% by 2030 with respect to the level of 2019 for the Shell group and the suppliers and customers of the group," announced Judge Larisa Alwin. Shell officials said they will appeal the decision.

Whether climate change proposals are pushed by shareholders or the courts, Simpson says, “Companies face several forms of climate risk – transition, as their business needs to adapt, physical risk, as assets are exposed to weather related changes, like sea level rise, storms and extreme temperature, and litigation risk, as liabilities are imposed through the legal system.”

She adds that she doesn’t believe the companies will suffer by cutting their emissions aggressively. “CalPERS relies on long term value creation to pay benefits to our members. We can’t do that unless companies prosper. Addressing climate change allows companies to both manage risk and deploy capital into opportunity. It’s an essential part of limiting damage and improving prospects for financial success.”

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