Investors Must Keep Pressuring Oil Majors on Climate Risk

By Mindy Lubber, President, Ceres


Annual general meetings at the world's largest fossil fuel companies are usually a time for reflecting on strategies to increase revenues for the coming year, global energy outlooks, and governance. But last week's annual meetings at Exxon Mobil and Chevron were different. They represented a watershed moment in combatting the threats posed by climate change.

Resolutions were put before shareholders requesting that Exxon and Chevron stress test their capital spending and business strategies against low oil demand scenarios consistent with the Paris Climate Agreement goal of limiting global temperature increases to below two degrees Celsius.

Investors in Chevron and Exxon backed these resolutions in record numbers: 41 percent and 38 percent, respectively. The Exxon result was especially impressive given the company's initial efforts to kill the resolution and then, when that failed, trying to convince shareholders to vote against it.

The votes send a powerful message that investors see climate change as a material financial risk that requires a rapid transition to a low-carbon future--a future that will invariably require far less use of fossil fuels. As one of Exxon's competitors, France's Total, said in its own analysis released one day before Exxon's meeting, "The 2°C scenario highlights the fact that a part of the world's fossil fuel resources cannot be developed. Total's growth strategy takes this into account."

Support for these common sense resolutions was not surprising. The proxy advisory firms ISS and Glass Lewis announced recommendations favoring the resolutions at Exxon and Chevron and, this month, Occidental Petroleum and AES Energy announced the highest-ever US votes among shareholders in support of climate risk resolutions. Despite this groundswell, however, Exxon unsuccessfully petitioned the SEC to block the resolutions and attempted to convince shareholders to ignore every scientific and economic argument being made by analysts, academics, and even its peers.

Take Statoil and ConocoPhillips, for example, which predict that under a two-degree scenario future oil demand will be in the range of 74-80 million barrels per day by mid-century. Exxon predicts consumption of 105 million barrels per day. Given that a mismatch between supply and demand of only a few million barrels per day caused the current price plunge, it's clear Exxon is planning for a very different oil price future than its competitors--an assumption that puts shareholders at risk.

Exxon executives have tried to paint the climate risk resolution as an initiative of activists or environmentalists, but that's a clear misrepresentation. The effort was led by many of the world's largest institutional investors, including the California Public Employees Retirement System (CalPERS), which owns more than US$1 billion worth of Exxon stock.

Investors are simply asking Exxon and Chevron to put prudent risk management measures in place that will position them for the low-carbon energy transition. Of particular concern is continued capital spending on high-cost, high-carbon projects with long timelines for development that likely won't go to market as global oil demand weakens.

So what exactly do investors want from these two companies? Let's take a look at changes that shareholders have helped achieve at ConocoPhillips and Total.

ConocoPhillips now incorporates four different low-carbon scenarios into their planning and--just a few months after releasing those scenarios to investors--they decided to completely abandon deepwater drilling. This is significant from a risk-management perspective since deepwater drilling has hugely expensive up-front capital costs and long lead times.

Last week Total released its own two-degree scenario trajectory, which resulted in a decision to end Arctic drilling. The company says it will no longer chase high-cost barrels of oil, but rather will focus on generating supply that meets demand for five to 10 years. The company, which is aiming to shift 20 percent of its portfolio to renewable energy, is also steering significant capital into a battery company and major ownership in a solar company.

Part of what made the resolutions at Exxon and Chevron so successful was the close transatlantic partnership between sustainability nonprofits such as Ceres and IIGCC, and shareholders in Europe and the US, who demonstrated a strong commitment to achieve the Paris climate accord's goals, and to forcing commensurate company action.

Investors have learned through their engagements with the European oil majors that change is possible, and that it takes a long-term, concerted effort to change business practices that have been engrained for decades. While nobody expects fossil fuel companies to become clean energy companies overnight, they do need to make prudent spending decisions that recognize the impacts of the accelerating clean energy transition.

Fossil fuel companies should not feel they are alone in being asked to confront these issues. Ceres is working across many sectors, encouraging companies to transition towards a low-carbon future, including electricity producers, automakers, even insurance companies.

We're at a unique moment where a wide range of groups are asking tough questions of the world's most powerful companies, about their business models and their impact on the world. At Ceres, we have been making the business case about climate risk for the past two decades and it is exciting to see capital markets starting to shift.

Last week's progress at the Exxon and Chevron annual meetings is a great first step, but more substantive responses from this country's two largest oil producers are clearly needed. Investors will continue pressuring them to take meaningful steps like their peers.

Mindy Lubber is president of the nonprofit sustainability Ceres, which is mobilizing many of the world's largest companies and investors to take stronger action on climate change, global water risks and other sustainability challenges. For details, visit or follow on Twitter @CeresNews.