Was Black Wednesday the beginning of the end for Big Oil?

Posted on June 01, 2021 by Charles Morris

The signs of a surge in electric vehicle adoption are everywhere. Tesla is reporting record demand as it pushes ahead with incredibly ambitious plans for new Gigafactories, new vehicles and new features. Legacy automakers are racing to catch up, announcing massive new investments and launching electric versions of their best-selling vehicles. In Europe’s most forward-looking markets, EVs are already outselling old-fashioned gas-burners.

Above: Growth of the electric vehicle market, led by Tesla, provides a backdrop of trouble for the oil industry (Source: Theo Jones / Tesla)

E-mobility and renewable energy are pulling the world towards a cleaner future. However, for the transition to take hold, there also needs to be a push away from fossil fuels, and we’re finally seeing signs that this is starting to happen.

As The Guardian reports, within a 24-hour period that the oil industry is calling Black Wednesday, three giant oil companies were recently told to clean up their acts—not by sign-waving protesters, but by shareholders and a court of law.

A court in The Hague ordered Royal Dutch Shell to greatly accelerate measures to reduce its climate emissions. Meanwhile, in the US, rebellions by large institutional shareholders imposed new emissions targets on Chevron and forced a boardroom reshuffle at ExxonMobil.

Mark Lewis, Chief Sustainability Strategist at BNP Paribas Asset Management, summed up the latest events in a clever quip that invokes the image of the supertankers that have been polluting the oceans and the atmosphere for decades. “This week’s news has been not so much a shot across the bows as a direct hit to the hull of Big Oil. They will have to recognize now that no amount of patching up the hole will do—shareholders and society want the vessel completely overhauled.”

The Dutch court ordered Shell to cut its emissions by 45% within the next 10 years. Oil industry analysts estimate that the ruling will force the multinational giant to slash its fossil fuel production by as much as a million barrels of oil and gas per day, erasing billions from its bottom line. “This aggressive shift would have meaningful cashflow implications for Shell,” said Biraj Borkhataria, an analyst at RBC Capital, adding that the expected cut in fossil fuel production could reduce Shell’s revenue by $6 billion per year.

Of course, Shell plans to appeal the “disappointing” ruling, and the ensuing legal battles will surely last several years. However, even if the court’s ruling ends up being reversed or watered down, the damage to Shell’s corporate reputation could be immense. Basically, the company is simply being asked to honor the emissions targets set out in the Paris Climate Agreement. “If they truly believe their strategy aligns with Paris, then there should be no problem complying with the court’s demands,” says Jasper Teulings, the former General Counsel for Greenpeace International. “Shell’s decision to appeal is therefore irreconcilable. Therein lies the lie.”

Furthermore, the decision sets a precedent that could unleash a wave of lawsuits against fossil fuel producers and other pillars of the fossil-fuel economy. Teulings predicts that other polluting industries will soon see “their days in court.”

On the other side of the Atlantic, two oil giants took fire from an even more implacable authority: shareholders. Major institutional investors are increasingly coming around to the view that oil and gas, long considered a conservative investment, is in fact a very risky one—especially if firms remain in denial about the need for climate action.

ExxonMobil shareholders, including investment giants BlackRock and Vanguard, voted to replace at least two of the firm’s board members with candidates put forward by Engine No 1, an activist hedge fund that pressures companies to support the transition to low-carbon energy. As CleanTechnica pointed out, the new directors, Gregory Goff and Kaisa Hietala, are not in any sense “climate activists,” as some of the credulous mainstream media have reported. They’re long-time oil industry insiders who have advocated an incremental approach to reducing emissions—but by all accounts, their views are at least slightly more progressive than those of the board members they’re replacing.

Update: Once all the votes were counted, it turned out that a third candidate, Alexander A. Karsner, who, according to the New York Times, “has strong environmental credentials and is expected to pose more of a challenge to senior management,” was also elected to the board. Karsner and the folks behind Engine No 1 represent what Thomas Friedman calls “mean greens”—environmentalists who are willing to play hardball in order to change polluting industries.

Chevron also felt the rising power of mean greens—at the company’s recent shareholder meeting, more than 60% of investors voted in favor of a climate resolution that would force the company to substantially reduce its emissions.

The growing realization that climate change poses major financial risks, not just environmental ones, could prove to have a compounding effect. Credit rating agency Moody’s has warned that the credit risk of major oil producers is growing. Some analysts predict that the financial pressure will soon be felt by the banks that finance fossil fuel projects, and by the insurers that underwrite the risk, causing less capital to flow into oil-related ventures, and more into sustainable investments.

The latest developments are cause for optimism among longtime climate campaigners such as Jasper Teulings. “Anyone who cares about the climate has felt times of panic, despair and helplessness. The ruling is a beacon of hope,” he told The Guardian. “Perhaps that’s the biggest impact—beyond the legal impact, and the concrete impact on carbon emissions, the ruling offers hope. It’s what we’ve been waiting for.”

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Written by: Charles Morris; Source: The Guardian

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