How climate activism is altering oil firms’ future

Environmental pollution. PHOTO | SHUTTERSTOCK

By GEORGE WACHIRA
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Summary

May was a bleak month for “Big Oil”, as environmental activist groups punched corporate egos of two major oil companies - ExxonMobil at an annual general meeting, and Shell in a Hague court.

In both cases lobbyists message was that the climate change agenda can no longer be a minimalist public relations game, but one with concrete and achievable milestones towards reduction of oil production and use.

The cliché by oil companies that “the world will continue needing oil for many years to come” will no longer hold ground nor sway public opinion.

During ExxonMobil AGM last week a climate change activist company (Engine No-1) which holds only 0.02 per cent of ExxonMobil stake managed to mobilise proxy support from major ExxonMobil shareholders (fund managers and institutional investors) to get two out of four Engine No-1 nominees elected to a 12-member ExxonMobil board. This was despite a sustained attempt by the oil major to stop it.

The investor proxy pressure was aimed at forcing ExxonMobil to significantly shift its business model to reflect the ongoing global energy transition from fossil fuels to renewable energy. The investors wanted the board to have members with oil/energy experience and who are sensitive to climate change impacts.

Further, in AGMs of several other major oil firms last month, shareholders successfully pushed for adoption of policies supporting clear paths for energy transition away from oil.

With the exit of President Trump (a global warming denier) and the coming of a climate-focused President Biden, protection for US oil companies by government policies is now diminished. The US firms are now having to belatedly catch up with the rest of the world in respect of the transition from oil to renewable energy.

And in the Hague last month, a judge ordered Shell to cut its carbon emissions by 45per cent by 2030. This was a landmark ruling in a climate case filed by a Dutch environmental lobby group. This was a precedent ruling because never before have global climate change targets been enforced by the judiciary.

Although this ruling is binding only in the Netherlands there is nothing to stop environmental lobbyists in other countries from trying out judicial enforcement of global climate objectives.

And earlier in May, the International Energy Agency (IEA), a renowned energy advisory organisation which represents OECD countries, published a report which stated “from today, halt all investment in new fossil fuel supply projects” for the world to achieve global warming targets.

For such an apex agency to explicitly state that new oil investments should stop has far reaching implications on the future production and use of oil. This is a loaded challenge to companies and countries planning to produce new oil.

Unlike lobby groups, the IEA generally represents the consensus of developed western governments, giving a lot of weight to its pronouncements which more aptly reflect the reality of future energy. Further, bilateral, and multilateral financiers are bound to take IEA comments seriously.

The narratives above are proof of convergence of activist, investor, and financier powers to significantly drive the pace of energy transition away from oil. These powers will become even more potent should the judiciary across the world become directly involved in enforcing global climate objectives.

In our Eastern African region, we are seeing a creeping and determined strategy by global and local environmental groups to dissuade global capital markets from availing some $2.5 billion needed by Total to fund export logistics for new Uganda oil production.

Indeed, until this funding is availed one cannot conclusively say that the Uganda oil is a done deal. In Kenya, in the absence of clear oil development strategies and commitments, Turkana oil is more a victim of investor and financier apathy, than of climate activism.

On a wider energy perspective for Kenya, it is important that the departments responsible for electricity and petroleum commence sharing thoughts and strategies on how to transition Kenya from oil-based energy to low carbon electricity.

They should jointly prepare a cost-effective national energy supply and use transition masterplan. We do not have to wait for environmental lobbyists to push us to implement an energy transition which is ultimately bound to happen.