Interface News Intern Journalist | Yu Juan
Under the uncertainty of the energy market, global oil and gas companies are exerting various pressures to maintain or increase oil and gas production.
According to a report by China Petroleum and Petrochemical magazine, on January 21st, US oil giant ExxonMobil sued two ESG (Environmental, Social, and Governance) advocacy investment institutions to prevent their proposed emissions reduction from entering the voting process at the shareholder meeting.
According to multiple media outlets, on February 2nd, both institutions withdrew their shareholder proposals calling for ExxonMobil to accelerate mid-term emissions reductions.
ExxonMobil's lawsuit is seen as a "counterattack" against climate advocates and the ESG investment community.
In May 2021, ExxonMobil faced a "climate coup" in its board election, and three board seats were forced to be replaced by individuals with more experience in energy transition, driven by ESG investment firm Engine No.1. The New York Times stated that the key to the victory of ESG advocates at that time was the support of large investment institutions such as BlackRock and State Street.
But three years later, ExxonMobil's "conservative" approach gained the support of most oil and gas companies. The capital market has also shown a positive attitude.
The Financial Times first reported on the incident on January 22nd. On the day of the news disclosure, ExxonMobil's stock price slightly declined, but ended with a 6.3% increase in the following week.
Despite two ESG investment firms withdrawing their proposals, ExxonMobil has stated that it will continue to pursue litigation.
"Once ExxonMobil wins the lawsuit, it is likely to have a cold cicada effect on investor petitions, and more American companies may follow suit and rule out climate related proposals through legal means. This is the worst-case scenario that could be expected," said Bao Qiong, the head of the climate investment and financing project at Greenpeace East Asia, to Interface News.
ExxonMobil's rare lawsuit
The Arjuna Capital and Follow This sued by ExxonMobil are institutions specializing in ESG investment movements.
"Some non-governmental organizations in European and American countries are active advocates of shareholder ownership, representing a considerable number of institutional and retail investors who hope to engage in dialogue with the invested companies and urge them to create greater value for society and make changes." Bao Qiong told Interface News, for example, recently a foundation in the United States named As You So successfully prompted Starbucks to provide customers with the option of bringing their own cups.
Follow This is a grassroots non-profit organization headquartered in the Netherlands that specifically urges the five major international oil giants to reduce emissions. It encourages the public to purchase stocks of oil and gas companies "one person, one share", and has Follow This as a collective representative to submit shareholder proposals to oil and gas companies. Currently, there are over 10000 members.
Arjuna Capital is an asset management and investment consulting firm based in the United States. In 2021, it forced Microsoft to release an investigation report on internal sexual harassment as a shareholder.
Starting from 2022, both institutions will make ExxonMobil a key lobbying target. According to the proposal released by Follow This, both institutions are requesting ExxonMobil to "go beyond current plans" and accelerate its emissions reduction pace before 2030 this year.
The Wall Street Journal reported that ExxonMobil has filed a lawsuit against the company, claiming that the proposal attempts to "restrict and micromanage" the company's operations, violating regulations of the US Securities and Exchange Commission.
"The defendant demanded that ExxonMobil change its daily business operations by changing or even completely canceling its product portfolio," ExxonMobil said.
Mark van Baal, founder of Follow This, responded on the agency's website, "ExxonMobil seems to interpret 'emissions reduction' as' reducing business'... The proposal (in fact) completely delegates decision-making power to the board of directors on how to achieve emissions reduction.".
The focus of both sides is on the scope and emission reduction of oil companies. Scope three emissions refer to the carbon emissions involved by enterprises upstream and downstream, such as carbon dioxide emissions during the combustion of petroleum products, which belong to the scope three emissions of oil and gas companies.
Due to reducing oil and gas production and shifting towards low-carbon product manufacturing being one of the most effective ways to reduce emissions, ExxonMobil's lawsuit is essentially aimed at maintaining oil and gas production and the oil and gas market.
Compared to its European oil and gas peers, ExxonMobil is known for its conservatism in energy transition. In October 2023, ExxonMobil also acquired local shale oil and gas producers for a total price of up to $59.5 billion (approximately RMB 434.3 billion), consolidating its production position.
According to public disclosure by ExxonMobil, the support rate of shareholders for the Follow This proposal decreased from 27.1% to 10.5% from 2022-2023. A proposal commissioned by Arjuna Capital in 2022 to establish a low-carbon business model for ExxonMobil only received 10.5% shareholder support.
After ExxonMobil suffered a setback, ESG investors continued to pressure their peers.
In mid January, Follow This announced that it had submitted a similar emission reduction vote proposal to Shell's 2024 shareholder meeting, along with 26 other investment institutions. Follow This said that Amundi, the largest asset management company in Europe, is also calling for it. 27 investment institutions collectively own 5% of Shell's stocks.
Bao Qiong told Interface News that usually after a shareholder proposal receives more than half of the votes, the company's board of directors has an obligation to formally include the proposal in the company's action agenda, or the investor withdraws the proposal after the company promises a satisfactory action plan to the investor before the shareholder meeting.
"But under some regulatory laws, even a 20% vote approval rate is sufficient to prompt companies to take action, such as the UK's corporate governance guidelines that require management to report 'actions taken' within six months if they receive more than 20% of the support vote at the annual shareholders' meeting.".
As of the time of publication, a spokesperson for ExxonMobil News did not respond to Interface News's written interview request regarding the litigation matter.
Why has there been little progress in the transformation of global oil and gas enterprises?
Compared to three years ago, ExxonMobil is currently at a more favorable time for itself.
After the Russia-Ukraine conflict broke out in 2022, the European energy crisis intensified, and the international oil price soared with the price of natural gas and electricity. Oil and gas companies generally make a lot of money.
This trend is still continuing. The latest financial report shows that ExxonMobil, Chevron, and Shell's net profit for the entire year of 2023 far exceeded the historical average level. ExxonMobil recorded a net profit of $36 billion in 2023. The Wall Street Journal commented in a report that during the global economic downturn, this profitability is second only to top technology companies such as Apple and Microsoft.
Affected by this, European oil and gas companies such as BP and Shell have shifted their focus and lowered their goal of clean transformation, further shelving the already slow transformation progress of global oil and gas companies.
According to the International Energy Agency (IEA), as of the end of 2023, global oil and gas companies accounted for only 1% of the world's clean energy investments, with the vast majority coming from private oil and gas companies such as Equinor, Total, Shell, and BP.
"People's attention often focuses on the role of private giants, but private oil and gas companies own less than 13% of global oil and gas production and reserves."
At the end of 2023, the IEA called for attention to the transformation pace of large national oil companies such as PetroChina and Saudi Aramco in its press release on the "Net Zero Transformation of the Oil and Gas Industry" report.
Tabulation: Interface News Intern Reporter Yu Juan
According to statistics from Interface News on representative oil and gas companies, ExxonMobil and China's "two barrels of oil" have lower investment levels in low-carbon business, and have not set absolute emission reduction targets for the scope three emissions. Total's low-carbon investment ratio is relatively high, but there is no clear long-term production reduction target planned.
The slow transformation of the global energy system and the high demand for fossil fuels are one of the fundamental reasons why large oil companies are unwilling to undergo significant transformation.
In addition, fossil energy companies investing in low-carbon businesses and making unsatisfactory profits may be another factor that hinders their transformation.
Global oil companies generally use carbon capture, utilization, and storage (CCUS) technology as a range of three emission reduction methods. However, the IEA criticized in the aforementioned report that, based on the current development of the oil and gas industry, the temperature rise should be controlled at 1.5% by 2050; Deg; Within C, it is necessary to capture 32 billion tons of carbon dioxide (for utilization or storage).
&Amp; Quota; This is completely unimaginable The amount of electricity required to power these technologies will be greater than the current global electricity demand. IEA represents.