ImpactAlpha, May 18 – As oil and gas companies enter the annual shareholder meeting season, they face a concerned, perhaps skeptical, investment community. Their operations and products are a primary driver of climate change, and investors increasingly want to understand how serious their public commitments to addressing the climate crisis are.
One of them, ExxonMobil, was my employer for 36 years.
Exxon and many others have long claimed to support a price on carbon and reduced emissions, but only actions count. We need to know which ones will embrace the role of an economically and environmentally-sustainable energy company that will lead us to a low-carbon future, and which intend to remain primarily as fossil fuel suppliers with low-carbon subsidiaries.
Investors deserve clear answers to critical questions. As a shareholder myself, here’s what I would ask:
Will your company adopt a new mission focused equally on supplying energy and protecting the climate?
The message from the top must be that success is profitably delivering energy without contributing to further global warming. Industry still seems focused mostly on ensuring financial performance, while “doing the best it can” to reduce emissions.
Working to provide clean energy while maintaining sustainable profits will position companies to thrive in the low-carbon future that they help build — and ultimately provide the greatest returns to shareholders.
Will your company set the absolute emissions-reduction goals essential to meeting the climate challenge? Will you incentivize executive performance accordingly?
Effective targets must deliver maximum reductions in early years when their benefits are greatest. The 2019 U.N. Environment Programme Emissions Gap Report concluded that annual cuts of 2.7% from 2020 to 2030 are needed to restrict temperature rise to two degrees Celsius. To get there, financial and climate goals must carry equal weight. Failure to meet either must carry equal penalty — 50% of bonus pay.
ExxonMobil, like many of its peers, recently announced a net-zero by 2050 operating emissions target to align with Paris Agreement goals. As someone who spent a career working to advance the industry’s environmental performance, I was glad but also concerned. ExxonMobil’s 2030 interim goal reflects the industry’s reluctance to urgently meet the scope of action needed. It targets less than 1% annual emissions reductions from 2020 through 2030, which will require it to then quadruple that annual pace to achieve the remaining 80% needed by 2050.
Companies must produce detailed emissions-reduction projections out to 2050 showing absolute greenhouse gas reductions. These projections must be public so everyone can evaluate the pace of expected progress and investors can determine where to place their money.
Will your company put political capital behind candidates who support a price on carbon through a carbon fee and dividend or tax?
Economists overwhelmingly say a price on carbon that reflects its societal cost is the fastest market-driven path to reducing emissions. A realistic price on carbon would reduce demand for fossil fuel-intensive products and services, thereby lowering emissions from product use. Companies have voiced support for such a policy for a decade or more. That doesn’t matter if they help elect candidates opposing it.
As midterm elections approach, U.S. oil and gas companies can prove that they are truly committed to a price on carbon by withholding funding from candidates who do not support one, and abandoning membership in organizations not actively doing the same.
Will your company focus expenditures on greater emissions reductions today and clean energy technology for tomorrow?
Rather than focus on improved fossil fuel development, oil and gas companies’ investments and research and development budgets must better balance developing, operationalizing and deploying emissions-reduction technologies available today with pursuing breakthrough technologies for the future.
Decades of spending on breakthrough research have delivered few broadly deployed technologies to date. Companies may fund patents, papers, and PhDs, but we need real – not theoretical – greenhouse gas reductions now.
In a 2018 CNBC column, I called on oil and gas companies to actively engage with policymakers, investors and other business leaders to become part of the climate solution and prepare credible, transparent emissions reduction plans as outlined in my paper, “A Framework for Credible 2 Degree Celsius Climate Planning.”
In a letter announcing his company’s 2021 Sustainability Report, ExxonMobil CEO Darren Woods wrote, “How we meet the world’s demand for the energy necessary for economic growth while mitigating the long-term impact on our environment is the key to our sustainable future.”
I could not agree more. Shareholders expect straight answers that will allow them to invest responsibly. It will require bold leadership in the c-suites of all oil and gas companies to answer “yes” to each question above, and then ensure their actions match their words.
Bill Hafker began working for ExxonMobil in 1980 and retired as a senior engineering advisor and environmental global technology sponsor from the company 36 years later.