All quiet on the ESG Front as Oil Back-Pedals on Net Zero

All quiet on the ESG Front as Oil Back-Pedals on Net Zero

By Sophie Lam 21 August, 2023

Greenwashing Alert! So-called climate activist shareholders are loud when oil is waning but silent when profits soar. Are investors just riding the green wave? CWR’s Lam breaks it down

Back in 2021, when oil prices were at an all-time low, Engine No. 1, an activist shareholder went up against oil giant ExxonMobil. With only a 0.02% stake in the company, Engine No.1 campaigned and managed to replace three seats on Exxon’s board with the aim of transitioning Big Oil to a low-carbon future. It was the ‘David and Goliath’ tale of Wall Street. Engine No. 1’s win served as a turning point for all. Other oil giants Chevron, ConocoPhillips, and Phillips 66 also faced calls to drastically cut emissions from Follow This, a Dutch activist shareholder.

Back in 2021 when oil prices hit an all-time low, investors held Big Oil accountable for creating our climate crisis

Big institutional investors like BlackRock and LGIM then jumped in voting for Big Oil to improve their net zero performance. For the first time ever, investors held the West’s largest oil companies accountable for creating our climate crisis. Big Oil responded, trying to out-do each other in the climate race by pouring billions into lower carbon projects and green tech. And before you knew it, Exxon, Shell, BP, Chevron, etc., had set 2050 net zero targets and interim emissions reduction goals.

But that was then, how about now? Have these investors that turned the tide continued to apply pressure on oil transition?

Greenwashing as Oil Booms! Investors are pro-climate when oil waned but silent when profits soar…

Fast forward to today, oil is no longer waning – the Ukraine war triggered a global oil boom. We all hoped the war was temporary but it’s been almost 18 months in and there’s still no end in sight to the misery. Meanwhile, the West’s 5 largest oil companies ExxonMobil, BP, Shell, TotalEnergies and Chevron, made out like bandits, generating record profits of US$219bn in 2022. World oil production soared to 101.7mb/d in 2022 from 92.8mb/d before the start of the war and there are no plans to slow down – according to the IEA, supply is set to rise by 2.2mb/d in 2023 and a further 1.1mb/d in 2024.

Fast forward to today – oil is booming because of the Ukraine War…

…& the West’s top 5 oil giants made US$219bn + investors pocketed US$46bn in just 3 months to Sept in 2022

To make things worse, oil giants have back-pedaled big time from their energy transition targets using the cover of global energy insecurity and the war as an excuse to pump more oil. But the thing is, climate change doesn’t stop for war and more oil means more emissions which will only accelerate warming and endanger us more.

You would think ESG/sustainable/responsible investors would know this, but clearly they don’t, or even worse, are turning a blind eye as they are making record returns: investors pocketed US$46bn in just three months leading up to September 2022, as dividends increased by 75% according to Janus Henderson.

Perhaps climate science can be bought because investors have been quiet since…

So, were investors just riding the green wave of climate action when oil prices were waning? But then when profits soar, they abandoned the cause – suddenly climate change becomes irrelevant to them. Perhaps US$46bn in dividends is the price of climate silence because they’ve been awfully quiet since…

Big Oil back-pedals on net zero targets…

The first energy giant to ‘walk the walk’ on emissions reduction was BP, it even adopted a green starburst logo and slogan “Beyond Petroleum”. But in February 2023, BP back-pedaled and lowered its emissions pledge – its “ambitious target” set in August 2020 to cut emissions by more than 35% by the end of this decade, is now down to a 20-30% cut.

BP back-pedaled its “ambitious target” set in Aug 2020 to cut emissions by more than 35% by 2030…

…is now down to a 20-30% cut…

Can we really say BP was committed if it can change its tune in under 3 years? The real question is – does it even really want to reduce emissions? After all, it gained approval earlier this year to ramp up oil exploration and drilling activity. Currently, BP has been developing more than 3 billion barrels of oil equivalent of new upstream assets, of which over half was built for fracking and drilling in ultra-deep waters – all of this is clearly very climate unfriendly!

In desperate attempts to steer BP back in the right direction, Follow This urged investors to vote for its ESG resolution to tighten back BP’s climate targets to no avail – it was rejected by 84% of its shareholders in its AGM this April. Even investor advisers ISS and Glass Lewis strongly recommended BP’s shareholders to oppose a climate resolution filed by Follow This in the following May AGM.

Investors are also back-pedaling – voting against climate resolutions…

It’s not just oil companies that are back-pedaling from climate pledges – the majority of their investors are too. According to S&P Global, ‘climate change’ and ‘emissions’ were key topics for discussions at the May 2023 AGMs – tabled in 5/8 shareholder resolutions at Chevron and 8/12 resolutions at Exxon. Every single one of these climate-related shareholder proposals were voted down by wide margins.

‘Climate change & emissions’ & were key topics at the May AGMs…

…but every single climate-related shareholder proposal was voted down by wide margins

At Chevron, the climate-related proposal that received the most “yes” votes, at a mere 18.6%, if passed, would’ve required the company to assess the impact of energy transition on its workers & communities where it operates. Over at Exxon, the proposal with the most “yes” votes (36.4%), if passed, would’ve required the company to actually measure & publicly disclose its emissions rather than come up with rough estimates.

How can we still not know the actual emissions of the West’s largest oil company? It’s 2023, not the 18^th century! Surely, something has gone very wrong when so-called climate-smart/ready, sustainable/ESG friendly (take your pick) institutional funds are voting to stay in the dark.

Even “ESG-advance” Europe is back-pedaling…

A couple of months ago, Shell also took a U-turn – to prioritize ramping up production and profits, it completely abandoned its 2021 climate strategy to reduce oil production by 1-2% each year. Even legal action filed by activist investor, Client Earth to get Shell to adopt an energy strategy that aligned with the compulsory transition to net zero failed twice in high court.

Shell also took a U-turn & abandoned its 2021 climate strategy to reduce oil production by 1-2% each year…

It’s clear that large institutional funds that provided momentum back in 2021 to get oil majors to pledge net zero are now nowhere to be seen. Lethargic isn’t even the right word – this wave of no-votes in 2023 is very much the opposite of the record number of yes-votes for climate in 2022.

Last year Engine No.1 even voted against a climate resolution for Exxon to cut its Scope 3 emissions

At least a couple of activist investors are still true to their word; the rest are just greenwashing. Even, Engine No. 1 was described as “one of the big disappointments of 2022” by Mark van Baal, the founder of Follow This. Last year, Engine No. 1 voted against the climate resolution for Exxon to cut its so-called Scope 3 emissions.

Maybe ESG was all a marketing ploy that raised our hopes of cutting emissions in time to stay within 1.5°C. Because when Big Oil took off their green mask and once again revealed their true colors, the so-called ‘pro-climate’ investors have just silently bathed in their dirty profits.

Governments are also regressing on oil…

It’s not just companies and investors that have regressed, but governments also. The UK, a champion of climate change (at least that’s what they played out to be at COP26 in Glasgow), recently dealt a blow to emissions. PM Rishi Sunak has just vowed to “max out” oil with plans to authorize over 100 new licenses for oil and gas drilling in the North Sea on the grounds of energy security.

The UK, ‘a champion of climate change’, now plans to authorize over 100 new licenses for oil & gas drilling…

While this may sound good, it will just lead to more oil and more carbon in the system – according to the Guardian, new North Sea oil & gas licenses approved by the UK government in the past 2 years will emit ~28mn tonnes of CO2 – equivalent to the entire yearly emissions of Denmark.

Sunak also defended the new projects by saying the UK would invest in carbon capture via the Acorn Project in Scotland, which was previously dropped. But this is likely insufficient – according to the BBC only 10mn tonnes of CO2 will be captured and stored by 2030 across all projects announced in 2021 and today.

To make this expansive announcement, Sunak even flew to Scotland in his private jet. When admonished, he said that “It’s not about banning flying. It’s about investing in new technologies, like sustainable aviation fuel that will make flying more sustainable. That’s the right approach to this” Sure, but how is this coming along? According to the Royal Society, the UK would have to devote more than double its total renewable electricity supply to make enough aviation fuel to meet its ambitions for “jet zero”. More words, more greenwashing.

…even Norway approved 19 oil & gas projects in 2023 & that’s on top of the 40 exploration wells opened last year

It’s not just England, Norway has also just approved 19 oil and gas projects amounting to more than US$19bn in 2023, and its only August. This is on top of the 40 exploration wells it opened last year. This is clearly the opposite to what the IPCC AR6 WG3 recommended. New oil infrastructure will push us even further away from our 1.5ºC target – as it is, according to the IPCC, “Projected cumulative future CO2 emissions over the lifetime of existing and currently planned fossil fuel infrastructure” without carbon capture already exceeds the total cumulative CO2 budget for 1.5ºC with no overshoot. Want to get a low-down of this IPCC report? – See our summary here.

Meanwhile, a key beneficiary, NBIM, is touting responsible investment…

Meanwhile, a key beneficiary, Norges Bank Investment Management, Norway’s US$1.3trn sovereign fund is going around advocating responsible/sustainable/ESG investment. It’s mission statement, “to safeguard and build financial wealth for future generations” is sounding more and more like a work of fiction than a guiding principle.

Global North setting bad examples for the Global South

The global south’s urban population is expected to increase by 2.7bn people by 2050 – this means more emissions.

If Western oil majors & its investors slide backwards…

…how can Asia’s so-called ‘laggard ESG funds’ be expected to follow suit?

If the G7, or European governments which are supposedly the ‘cleanest’ and most climate advance in the march to net zero are back-pedaling, then how can we hold the Global South to their pledges? If investors let the Western oil majors slide backwards, won’t it be rich for ESG investors to ask Saudi Aramco, PetroChina, Sinopec etc., to hold the line? And if the world’s leading ESG funds are also backtracking their promises, how can Asia’s so-called ‘laggard ESG funds’ be expected to follow suit?

Perhaps, it’s because the G7 are pro-oil and anti-coal because that’s what they are pumping more of. But we know from the IPCC AR6 WG3, we can’t just cut one, we must cut both. Ending coal but not oil & gas is yet another climate injustice.

Ignoring this summer of climate hell is not sustainable nor responsible…

Isn’t this all a little hypocritical? A dam just collapsed in Norway from a fatal storm as the country battles record high river levels, flooding and landslides.

At 1.2ºC of warming today, climate hell is already here…

…& these impacts are a glimpse of what’s yet to come

Elsewhere, climate hell is already here for some of us today – from North to South heat records are broken around the world, blazing wildfires in Maui wiped out an entire town, over a million people were displaced from devastating floods in China, a quarter million people were forced to relocate in Japan from a typhoon…

At 1.2ºC of warming today – the “mass exodus of biblical proportions” that UN’s Guterres warned is already here. Wake up! These impacts are a glimpse of what’s yet to come.

The oil boom will only add fuel to fire. Carbon solutions are not going to magically appear with no investments or plans. According to the UN, for every dollar big oil has spent on drilling and exploration, only four cents go into clean energy and carbon capture combined. We are “trading the future for 30 pieces of silver” – it’s immoral as Guterres said.

We did it before, we can do it again!

Corporates, investors, & govts must now really walk the walk & not just talk it

How much longer can we keep turning a blind eye to these escalating impacts? Corporates, investors, and governments must now really walk the talk, and not just talk. If you say you are pushing for transition/ESG/ sustainability then actually do it and deliver. Don’t just make a big deal out of promising and pledging then give up when it’s inconvenient. Our planet needs you all to step up and be responsible.

At least some banks, corporates and investors are pushing for transformative adaptation and for banks to stress test to the “cannot be ruled out” scenario. That’s a good step.

However, it’s not going to be easy to “end oil” but we must try. Something’s got to give – if there’s no pain, there’s no gain. We managed to turn these oil majors before, we can definitely do it again. We cannot afford to wait any longer as this would mean missing the window to cut emissions in time. All the signs are here today, when are we going act upon them?

Further Reading

• IPCC AR6: High Hopes For Oil & The US + China & The Rest Of Us – Rapid and big action is needed to stay within 1.5ºC. What is the best plan of action? Which sectors need major cuts? Who is still financing oil & gas?  Find out and more in CWR’s key takeaways from the latest IPCC AR6 WG3 report
• 8 Empty Promises & Hypocrisies – An Asian Perspective on COP26 – CWR’s Leung share how hypocrisies by developed countries means Asia needs to step up on the race to resilience
• G20: Don’t Just End Coal; Add Deep Cuts For Oil & Gas Too – Producing >60% of coal, oil & gas, G20 is trying to end coal yet still subsidising oil & gas. Why does this happen? Which countries are most responsible? CWR’s Ronald Leung brings to light the motivations behind
• Asia, Why On Earth Would We Leave Our Future To The G7? – With G7’s absent leadership & inability to plan for pandemics, CWR’s Tan calls for Asia to step-up and lead the global fight against our climate crises
• COVID & Climate – Make Money Or Save Lives? – Governments are prioritising lives over money but with pressure to re-open the economy, can we use lessons learnt from COVID-19 to prepare for the climate crisis? CWR’s Ronald Leung explores the future of aviation and low oil prices

More on latest

• Gathering A Rising Tide: 8 Positive Points On Coastal Threat Stress Testing Since Publishing Our Report – Despite climate challenges, we’ve been feeling more positive thanks to the active engagement we’ve had with finance & corporates on our sea level rise report as CWR’s Mirando shares
• Engaging Investors: A Conversation With Founder Ben McCarron – McCarron, Founder of ARE, talks to us about his work on harmonizing Asia’s banks and the global climate agenda. Are Asia’s banks keeping pace with changing expectations?
• Investing in Water – No Longer ‘ESG Safe’? 3 Thoughts – Greenwashing risks are on the rise as investing in water is heading for choppy waters, which could leave us up sewage creek. CWR’s Tan shares 3 thoughts on why water investments are not automatically ESG safe, investors take note