Investing in Climate Change

Oil and Gas Companies Engage with Investors to Align on ESG Practices


Fossil fuel companies around the world are responding to increasing pressure from institutional investors to address the realities of climate change. The watershed 2015 Paris Agreement centered attention on the long-term damage the environment faces and the importance of investing in climate change solutions. Two years later, a report from the Global Investor Coalition on Climate Change (GIC) and CDP concluded that in the past, investor engagement had a significant impact on decision-making at fossil fuel companies, highlighting the power shareholders have to effect positive change on a global scale.

Oil Sector Progress

Eight out of the 10 large North American and European oil and gas companies analyzed in the GIC/CDP report signaled their support of the Paris Agreement’s goal to limit the average rise in global temperature to less than 2°C by tackling CO2 emissions. Seven of those same 10 companies studied have also performed scenario analyses to determine how this support could impact their business strategies. Eight companies have disclosed their scope 3 emissions, though only four have established emissions reductions targets. And while half of the companies evaluated had begun to link executive remuneration to emissions performance, only BP and Statoil made a connection between remuneration and “a strategic intent to reduce the company’s climate impact.”

Beyond the GIC/CDP report, oil major Royal Dutch Shell has demonstrated unique progress. In December 2018, the company issued a joint statement with the Climate Action 100+ initiative not only reiterating its support for the Paris Agreement but also revealing that it was going further than previous pledges. The company promised to put a motion linking energy transition and long-term remuneration to a shareholder vote at its 2020 annual general meeting. Shell also pledged to actively benchmark shorter-term progress on its goal to cut its net carbon footprint by about 20% by 2035 and 50% by 2050.

Not everyone agrees on how to judge the progress fossil fuel companies have made in recent years.

Additionally, Reuters reports that Shell and other European oil majors have been expanding their spending on alternative energy over recent years—to the point where these firms’ investments account for about 70% of big oil’s renewable capacity. Shell has $1 to 2 billion per year earmarked for clean energy technologies out of its total $30 billion budget, while Norwegian Equinor will devote up to a fifth of its budget to renewables by 2030. Multiple factors drive these investments: “For many of them, when they started diversifying it was because of investor pressure . . . but I think now it’s the market forces that are making them look into diversification,” said Valentina Kretzschmar, director of research at energy research and consultancy firm Wood Mackenzie.

Domestically, ExxonMobil agreed in December 2017 to publish more information about climate change’s impact on its activities, including new details on “energy demand sensitivities, implications of two-degree Celsius scenarios, and positioning for a lower-carbon future.” The pledge came in response to a shareholder resolution led in part by New York State Comptroller Thomas P. Di Napoli, who called it “a win for shareholders and for the company’s ability to manage risk.” Pressure from shareholders culminated in New York’s attorney general suing ExxonMobil last fall. The suit alleges that ExxonMobil deliberately understated the risks posed to its business by climate change regulation, defrauding its shareholders.

Characterizing the Shift

Not everyone agrees on how to judge the progress fossil fuel companies have made in recent years. “It all sounds really good, and if you take it as a legitimate strategy, a lot of that stuff will likely lead to positive outcomes,” said the Sustainability Accounting Standards Board’s David Parham. “But there always is the potential it’s primarily marketing or messaging materials.”

Even where tangible investments in renewable energy are involved, perspective comes into play. According to Reuters, the top 24 public oil companies increased their spending on low-carbon energy from 0.68% of their budget between 2010 and 2017 to 1.3% in 2018, adding $3.38 billion to the sector. But this “figure pales in comparison with the amount of money Big Oil spends blocking climate initiatives and regulations, and invests in fossil fuel projects that have no place in a well-below 2 degree Celsius world,” ShareAction’s Jeanne Martin said. “Investors need to step up their engagement and tell fossil fuel companies to align their business models with the goals of the Paris Agreement.”

Last year, US nonprofit As You Sow pointed to the general lack of progress in getting US-based oil and gas companies to limit their greenhouse gas emissions. This was despite 160 climate change shareholder resolutions having been filed at 24 fossil fuel companies between 2012 and 2018. While As You Sow noted some apparent successes, including seeing more environmentally friendly board members appointed and achieving certain operational reductions in emissions, it connected still-rising emissions rates and oil production spending to “a fundamental limitation of the current shareholder engagement strategy.”

While it’s clear to see some measurable progress has been made, most have their sights on what can continue to be accomplished in the future. Commenting on the GIC/CDP report, Hermes Investment Management director Tim Goodman affirmed a need not only to “acknowledge that the oil and gas industry is responding to demand” but also to “apply significantly more pressure using all the tools available.”


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