‘Black Wednesday’ for big oil companies as courts and boardrooms turn to industry

‘Black Wednesday’ for big oil companies as courts and boardrooms turn to industry

The world’s patience with the fossil fuel industry is dwindling. This is the clear message delivered to the big international oil companies this week, on an unprecedented date of awareness of their role in the climate crisis.

In an astonishing series of defeats for the oil industry, in less than 24 hours, courtrooms and boardrooms turned against executives at Shell, ExxonMobil and Chevron. Shell has been ordered by a court in The Hague to go much further to reduce its climate emissions, while shareholder rebellions in the United States have imposed emissions targets on Chevron and a boardroom redesign at Exxon .

“There is no doubt that the news this week was not so much love at first sight as it was a blow to the hull of Big Oil,” said Mark Lewis, chief sustainability strategist at BNP Paribas Asset Management. “They will have to recognize now that no amount of tinkering will do; shareholders and society want the ship to be completely overhauled.

The director of the Dutch environmental organization ‘Milieudefensie’ Donald Pols reacts as he leaves a court in The Hague. Photography: Remko de Waal / ANP / AFP / Getty Images

For climate activists, the “black Wednesday” of the oil industry marked a turning point in the financial and legal consequences that await oil companies that do not act quickly to take responsibility for their role in preventing a crisis. climate disaster.

“It was honestly a very emotional moment,” said Jasper Teulings, former general counsel for Greenpeace International. The Dutch court’s decision ordering Shell to cut emissions by 45% over the next 10 years “shifts the debate” and could influence courtrooms around the world, he told The Guardian.

“It is clear that the onus is on the industry to act and that it can be held responsible for taking very specific actions. It is very relevant from a legal point of view because the judgment was very pure in its request: it is not about money, it is about behavior. It was cleverly reasonable, ”he says.

The basis of the case, brought by Dutch climate activists to Milieudefensie, was rooted in standards derived from elements of human rights law and UN guiding principles, which have “quasi-application” universal ”and could be used in cases against other major polluters.

“We are seeing a convergence of issues because, in reality, climate issues are human rights issues. I see no reason why these [arguments] will not be reproduced elsewhere. Polluters can expect to see their light in court, ”says Teulings.

Shell said it would appeal the “disappointing” decision, which calls on the company to align with emissions targets set in the Paris Climate Agreement. The decision could lead to years of legal wrangling and prove deeply damaging to Shell’s reputation.

“If they really believe their strategy is aligned with Paris, then there should be no problem complying with the court’s demands,” Teulings said. “Shell’s decision to appeal is therefore irreconcilable. Therein lies the lie.

The court ruling will force Shell to cut at least one million barrels of oil and gas from its fossil fuel production every day, at a cost of billions of dollars a year, oil industry analysts say.

Biraj Borkhataria, analyst at RBC Capital, said: “To put it simply, this aggressive change would have significant cash flow implications for Shell. He estimates that the sharp reduction in fossil fuel production could cost Shell $ 6 billion a year.

Increasingly, large institutional investors are also increasingly concerned about the cost of inaction on the climate agenda. This is the clearest sign to date that climate action is being treated as a major financial risk as well as an environmental risk.

Exxon shareholders, including investment giants BlackRock and Vanguard, voted to oust at least two of the oil giant’s board members in favor of candidates put forward by Engine No 1, an activist hedge fund founded there. less than six months ago, for not taking the transition to low carbon energy seriously.

At Chevron, more than 60% of investors voted in favor of a climate resolution by Dutch campaign group Follow This to force the company to cut emissions.

Eli Kasargod-Staub, executive director of Majority Action, a shareholder group, said after the two US rebellions that “for the first time in history responsible shareholders have broken down the walls protecting boards of directors. recalcitrant ”.

“ExxonMobil’s challenge is just the beginning of a balance sheet for directors who fail to make measurable progress towards decarbonization and protecting long-term shareholder value,” added Kasargod-Staub.

Among the largest institutional investors in the fossil fuel industry, concerns are much more about the potential destruction of long-term shareholder value than about the destruction of the environment. But they expect leaders to take a defensive stance against the risks of a greener world – which means investing in the green technologies of the future.

Days after the oil industry’s “black Wednesday” calculation, rating agency Moody’s warned that the credit risk of major oil producers had increased. The convergence of financial risk with the long-standing concerns of climate activists could prove to be a crucial tipping point against climate action cynics.

Oil industry experts have warned that forcing Shell to cut back on fossil fuel production would simply shift its barrels of oil to smaller private oil companies or larger public oil giants, with little impact on global emissions.

This ignores the endemic climate concerns that are taking hold in financing the fossil fuel sector, says Mike Coffin, a researcher at financial think tank Carbon Tracker. The pressure from climate activists “will be felt by the banks that finance these projects” and by the insurers who underwrite the risk. Regardless of which company hopes to drill for oil, it will be seen as a riskier prospect and capital will be limited, he says.

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The flow of capital once destined for fossil fuels towards sustainable investments may even help accelerate the inevitable trajectory of falling oil demand and falling market prices, which could force oil-producing countries to rethink their investments as well. public, says Coffin.

For longtime activists, including Treuling, the cumulative implications of last week’s climate victories offer a rare opportunity for optimism.

“Anyone who cares about the climate has experienced times of panic, despair and helplessness. The decision is a beacon of hope, ”he said. “This is perhaps the most important impact; beyond the legal impact and the concrete impact on carbon emissions, the judgment offers hope. This is what we expected.


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