For Big Oil executives, it is difficult to imagine new business models beyond oil and gas. They climbed to the top of the pyramid by being the smartest guys in the room, turning hydrocarbons into petrodollars. Success is a lousy teacher: therefore, they are still determined to increase their total emissions this decade.
Investors cannot look at the short-term interest of Big Oil alone; they have to look after the long-term interest of their entire portfolios invested all over the global economy.
They know that the entire global economy is at risk because of climate change; fearing that floods, wildfires and other damage exacerbated by rising temperatures are hurting the bottom line of their portfolios, and are determined to reach the goal of the Paris Accord.
Long-term investors thus want change and are really losing their patience with Big Oil. Last May, an unprecedented number of shareholders voted in favour of the Follow This Climate Resolutions requesting Paris-consistent emissions reductions: in Europe, votes more than doubled for the third time; in the US, votes reached historical majorities.
These major milestones would not have been possible without the growing number of investors that refuse to settle for company-issued disclosures, but insist on science-based emission reduction targets by voting for climate resolutions.
In the same period, the IEA net zero roadmap, the historic court ruling for Shell, IPCC’s Sixth Assessment Report, divestments by prominent investors, and COP26 in Glasgow reiterated the necessity for a reduction of absolute emissions of around 45% by 2030 to achieve the goal of the Paris Accord.
Talking about ‘net zero by 2050’ like many oil majors do, is meaningless without immediate emissions reductions. From the courtroom, to the lab and on the balance sheet, the consensus is clear: oil majors need Paris-aligned decarbonisation strategies that reduce emissions in the short-term.
However, half a year after shareholder rebellions during their AGMs, the boards of Big Oil are still determined to increase absolute emissions, while claiming to have support from their shareholders for their own ‘Paris-consistent’ strategies. BP expects “the absolute level of emissions to grow between now and 2030, even as the carbon intensity falls” and in-depth research by Global Climate Insights shows Shell’s absolute emissions will rise as well.
In response to the climate resolutions votes, required by the UK corporate governance code, BP claims to have “heard clear support for [BP’s] strategy” during “extensive engagement with investors after the vote”; Shell claims “broad indications of support for Shell’s strategy”.
From BP and Shell’s official responses, we can only draw the following conclusions: these companies misuse engagement with investors, and only voting sends a clear and unambiguous signal to the boards of these companies.
In previous years, Big Oil’s executives have shown that they only move after their shareholders vote for climate resolutions. So far, five oil majors have reluctantly set targets to reduce product emissions (Scope 3) after shareholders’ votes, yet all fall short of Paris consistency. Therefore, Big Oil needs a clear shareholder mandate to set science-based targets and articulate a Paris-consistent decarbonisation strategy.
The IPCC could not be more clear: ‘unless there are immediate, rapid and large-scale reductions in greenhouse gas emissions, limiting warming to close to 1.5°C or even 2°C will be beyond reach’ (IPCC Sixth Assessment Report Press Release, 9 August 2021).
In 2022, voting must compel oil majors to set Paris-consistent Scope 3 targets; targets that will result in deep cuts in absolute emissions by 2030.
If shareholders will not stop oil major executives from increasing emissions, who will?
Mark van Baal and Mathijs ter Wee of Follow This, a group of green shareholders that filed shareholder resolutions requesting Paris-consistent emissions reductions at Shell, BP, ExxonMobil, Chevron, and four other US oil majors.