In May, the International Energy Agency, which provides insight and predictions around future energy patterns, published its ‘Net zero by 2050’ roadmap. It paints a clear picture of the implications of countries meeting their net-zero carbon commitments, and what is required of our economies to get there.
Among the IEA’s suggested ‘priority actions’ is that oil and gas companies halt new fossil fuel projects as soon as 2022. Instead, they focus their pipeline on low carbon R&D and rapidly scaling up existing clean energy technologies. Despite the Covid pandemic resulting in a (temporary) drop in new fossil fuel project investment, even those fossil fuel companies leading the transition like Equinor or Total, still have over 80% of their pipeline dedicated to dirty energy sources.
G7 define ambitions ahead of COP26
At their recent summit in Cornwall, climate ministers from G7 countries committed to achieving “an overwhelmingly decarbonised power system in the 2030s” within their jurisdictions. This included accelerating the transition away from unabated coal capacity – coal generation without carbon capture technologies.
The G7 will also end the funding of new coal generation in developing countries and offer up to £2bn ($2.8bn) to stop using the fuel. While many were hoping for concrete time-bound targets, these commitments add further pressure on carbon-heavy energy businesses and the coal supply chain.
While active investors have previously been engaging with company management and using Annual general meetings (AGMs) to push for positive change in the largest polluting companies (with varying degrees of effectiveness) this month saw a new breakthrough.
Exxon Mobil is the second largest listed company contributor to climate change since its inception. At its AGM, as the result of an investor collaboration, Exxon was defeated in proposing board members, in favour of handpicked independent candidates seeking to transform the business towards net-zero. This is a new version of activism, now allowing much-needed disruption from within.
Landmark legal victory
Another way to induce change is through legal routes. This month, the energy company Shell received a Dutch court order to cut emissions at greater speed and scope than previously planned. The plaintiffs successfully argued that Shell knew of the dangerous consequences of CO2 emissions for decades, and that and its current targets remained insufficient. This landmark ruling could trigger legal action against energy companies around the world – providing additional pressure to other industrial polluters to set more ambitious targets aligned with the Paris Climate Accord.
Clearly, this last month has highlighted that we need a more rapid energy transition, and that the failure to act by big oil is now seen both as a moral misstep by their management and a heightened investment risk. We appreciate that we require a system-wide transformation to meet our climate goals, and while our portfolios indeed avoid the oil giants, our focus remains on companies providing decarbonisation solutions.