While Alexander is famous for his bad day, yesterday the oil and gas sector had one of their own.
We’ll start with Royal Dutch Shell (RDS). Reuters reported that a Dutch court ordered RDS “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.” The court order states that RDS’ existing climate policy was “not concrete, has many caveats and is based on monitoring social developments rather than the company’s own responsibility for achieving a CO2 reduction.” The company will appeal the decision.
It is also worth pointing out some less-obvious yet highly meaningful aspects of this decision:
- The court order relates to the company’s absolute emissions rather than net emissions or proxy indicators such as carbon intensity metrics.
- 2019 is the baseline year against which reductions are mandated.
- Scope 3 emissions (those originating from customer use of RDS’ fossil fuels) are included in the emissions reduction order. This particular finding of the court is the manifestation of potential product liability risk that I touch on below – and which I’ll cover in greater detail in a future blog.
ExxonMobil got hit at the Board level. As Lynn reports in TheCorporateCounsel.net, a small activist hedge fund named Engine No. 1 appears to have been successful in their bid to seat two of their nominees for the Board of Directors, with voting still being tallied on the fund’s third nominee. Interestingly, Engine No. 1’s slate drew support from CalSTERS, CalPERS, the New York Common Retirement Fund, the Church of England and BlackRock, even as the company itself opposed the nominations.
Chevron also received a message from shareholders. S&P Global reported that 61% voted in favor of a proposal requesting the company “substantially reduce the greenhouse gas (GHG) emissions of their energy products (Scope 3) in the medium- and long-term future.” The proposal contains no detail or guidance than that, leaving room for flexibility in the company’s approach.
Finally, Ford announced that it expects 40% of its global vehicle volume to be all-electric by 2030, bumped up its planned electrification spending to $30+ billion by 2025, and has amassed 70k orders for the all-electric F-150 that was unveiled only a week ago. This news will only bolster investor sentiment that reliance on a fossil fuel strategy is risky, creating even more pressure on boards.
This was undoubtedly a significant week for oil and gas, but will it be the start of a trend? We will see, but the momentum seems to be in that direction.
What You Can Do
Especially for those in carbon-intensive industries, companies may benefit from
- Reviewing and updating (if appropriate) your current climate policy, commitments, and plans in light of emerging shareholder actions and potential legal actions for accelerating implementation
- Scrutinizing climate related disclosures and metrics
- Assessing the risk of litigation that follows the Dutch court’s verdict
- Developing contingency plans based on a variety of court decisions
- Analyzing potential impacts of – and responses to – being held accountable for emissions resulting from customer use of your products (Scope 3 emissions)
- Evaluating Scope 3 emissions in the context of product liability risk management