Climate: Tide turns on energy firms

The Dutch court’s landmark ruling on Shell and ExxonMobil’s activist investors has significant implications for energy companies going forward.

“It is unprecedented that courts can now dictate the corporate strategy of a major emitter of greenhouse gasses, with the court labelling Shell as “partly responsible” for climate change. These are incredibly strong words,” observes Lucy Coutts, Investment Director, JM Finn.

Meanwhile, the shareholder rebellion at ExxonMobil is another significant development. BlackRock, the world’s biggest asset manager, which owns a 6.7% stake in Exxon, sided with the rival upstart, according to Reuters, due to frustration with the company’s refusal to take climate concerns seriously. It is understood Legal & General, one of Exxon’s top 20 investors, also said to have backed Engine No. 1.

“The even bigger story relates to ExxonMobil,” continues Coutts. “Once the world’s most valuable company, it now has been forced to give up two board seats to a small activist hedge fund investor with the potential for a third once all votes are counted. Engine No. 1, has made its intention clear; to push the company to look beyond oil and gas development, claiming that it is an existential risk.”

“The investor owns a minuscule percentage of the company, but it is backed by Blackrock which owns a higher percentage, who supported having the activist members on board.

“It was notable that Darren Woods, the CEO of ExxonMobil, last week told shareholders not to vote for the activist investor for fear that it would derail the company’s progress, and dividend.

“Given that the company is laden with debt to pay dividends, he should probably listen to his shareholders a little bit more. To echo Larry Fink, climate risk is definitely investment risk, and yesterday was a very, very big day for this.”

Rising tide of legal action

The Hague District Court’s landmark ruling against Royal Dutch Shell to set more ambitious emission reduction targets is part of a rising tide of legal action that will have global implications for heavy emitting businesses, according to a report from Verisk Maplecroft.

Verisk’s Climate Litigation Index, which assesses the likelihood of climate lawsuits being filed and pursued against companies in 198 countries, finds that those operating in developed economies – especially the US, UK, EU and Australia – currently face the highest risk of legal action. However, the picture could be changing.

It notes that climate litigation is beginning shift towards new markets, including major emerging economies such as Argentina, South Africa and India, where climate activism is a less intrusive yet burgeoning issue.

Unlike in developed countries, in emerging markets the drivers behind the rising trend in climate litigation are more varied, and there are more human rights-based and governmental ‘failure to act’ cases.

An aware and mobilised public can use the courts to push governments to implement stronger climate policies. “This is what we saw happen in the Netherlands in 2015, when the Urgenda Foundation successfully sued the government for stricter 2020 emissions reduction targets, forcing The Hague to introduce additional measures, following a 2019 appeal,” it says.

“And this is not an isolated incident. Cases like these are opening the door for other activists to pressure governments for more ambitious climate policies – especially ahead of COP26.”