Investors in energy majors step up demands on climate action

Shareholder activism has a long history in commodities. In the early 17th century, Isaac Le Maire, grain trader and disgruntled former governor of the Dutch East India Company, attempted to break the company’s monopoly by speculatively trading its shares.

His scheme failed, but Le Maire’s desire to shake up the status quo of the trade route between Europe and India eventually led to the discovery of Cape Horn.

Skip forward 400 years and shareholder activism in another Dutch-origin resources giant has taken on a less selfish hue.

In December, the Church of England, along with other investors in Shell, helped to persuade the energy giant to commit to setting targets to cut its carbon footprint by 20% by 2035 and half by 2050. The company’s achievements in reducing carbon emissions is to be linked to executive pay, subject to a shareholder vote in 2020.

The commitment by Shell came in the wake of a startling special report by the Intergovernmental Panel on Climate Change, published in October. The report, commissioned following the 2015 Paris agreement, charts the consequences of a 1.5 degrees Celsius rise in global temperatures from pre-industrial levels.

The Paris agreement commits signatories to taking action to limit temperature rises “well below” 2 C, though many poorer and low-lying coastal countries felt this did not go far enough, and wanted an agreement to limit rises to 1.5 C. Global temperatures have already climbed by around 1 C.

The significant findings of the IPCC special report are that serious environmental changes occur at lower temperatures than previously thought and, while more damaging than a 1 C rise, 1.5 C represents a much more habitable planet than 2 C.

National commitments fall short

One important factor in these changes is the potential feedback loops at certain critical trigger points. For example, the thawing of the northern permafrost, or melting of large sections of polar ice caps. Such events would release large amounts of additional greenhouse gases, or lead to large rises in sea levels. Such events could create feedback loops in the global climate system, locking in further heating of the planet.

So far, so terrifying. But there’s more.

Current commitments by national governments are expected to lead to around 3 C of warming by 2100, with further warming beyond that date. The IEA said in its latest World Energy Outlook that CO2 emissions under planned policies are on a slow upward trend to 2040, and are “far out of step” with what is needed to tackle climate change.

The IPCC says staying within a 1.5 C rise requires “rapid and far-reaching transitions in energy, land, urban and infrastructure (including transport and building), and industrial systems” that are “unprecedented in terms of scale, but not necessarily in terms of speed.”

On the current course, global warming is expected to reach 1.5 C between 2030 and 2052. Limiting temperature rises to 1.5 C requires a 45% reduction in anthropogenic CO2 emissions by 2030 from 2010 levels, and net zero by 2050, according to the IPCC report.

The scale of the challenge highlights the importance of commitments made by the likes of Shell, and the influence shareholders can have in the fight against climate change. National governments – on current commitments – will fall short of their obligations. And with important consumer and producer countries such as the US and Brazil under climate-change-skeptical leadership, the onus falls increasingly on other sections of society.

The motive goes beyond the purely altruistic, though. Agricultural companies’ businesses could be devastated by climate change, with crop yields potentially falling, and harvests failing more often. And energy giants could find themselves owners of billions of dollars of stranded assets, should climate change come to be taken seriously enough to keep fossil fuels in the ground.

Shell case emboldens activists

Following its success with Shell, the Church Commissioners for England, along with the head of New York State's retirement fund, Thomas DiNapoli, turned their attention to American giant ExxonMobil. Shortly before Christmas, the investor-campaigners filed a shareholder resolution for consideration at the major's next annual meeting requiring it disclose greenhouse gas reduction targets for the short-, medium- and long-term, in an effort to limit global temperature increases to 1.5 C.

But the campaigners could have their work cut out. ExxonMobil has already attempted to block the Massachusetts Attorney General’s investigation into its research into climate change, although the US Supreme Court rejected the appeal in early January.

As pressure mounts on the energy industry to change, both from governments and from shareholders, we may yet see more companies taking a lead on climate change policy.

This article previously appeared as a column in The National