This has been a seismic week for international oil and gas companies that have been slow to transition into clean energy firms 鈥� but are now being forced to change faster by courts and investors.
The most significant moment came on Wednesday, when a Anglo-Dutch firm Shell to cut its carbon emissions by 45 per cent by 2030, vitally including emissions from the products it sells. It was the first time a court anywhere has ruled that a聽company has a responsibility to reduce emissions, and a legal first to make a firm align itself with the goals of the Paris Agreement.
The same day, to make US company Chevron responsible for reducing the emissions from customers burning its products, and a small hedge fund made US firm ExxonMobil accept on its board. The three moments together constituted a 鈥渃rushing day for Big Oil鈥�, of climate group 350.org.
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But how important is this in the fight to avoid catastrophic climate change? And what does it tell us about how future litigation and shareholder pressure will transform major oil companies?
The court judgment will have big ramifications, and not only for Shell. 鈥淚t really is a landmark, I don鈥檛 think it鈥檚 being overhyped,鈥� says at UK environmental law charity ClientEarth. Shell has promised to file an appeal, in which Benson expects the company will argue that the court erred in its interpretation of Dutch law. Regardless of the appeal鈥檚 outcome, the ruling is provisionally enforceable in the meantime, meaning Shell must immediately begin pivoting towards a radical emissions cut or risk further legal action.
The precedent also puts rival oil and gas companies and big emitters in other sectors in the crosshairs for future climate litigation, even if they are in a different legal jurisdiction. 鈥淚 do think it will embolden other climate activists to bring other cases against fossil fuel companies, especially if they are perceived to not be addressing investors鈥� concerns. Not just fossil fuel companies but other big emitters in transport, mining, agriculture,鈥� says at risk consultancy Verisk Maplecroft in the UK.
The challenge against Shell was brought by Friends of the Earth Netherlands and others, and the legal basis on which they won is a very broad obligation in Dutch civil law on making sure 鈥渄ue care鈥� is exercised in society. The key factors the court found relevant were the size of Shell鈥檚 emissions in the context of the Netherlands, and the right to life under human rights law. The court deemed the company鈥檚 existing emissions plans 鈥渦ndefined鈥�, 鈥渋ntangible鈥� and 鈥渘on-binding鈥�, effectively so poor as to be unlawful.
at the London School of Economics, , says this means the case is likely to be replicated. 鈥淲hat we鈥檝e observed is when you have one successful case, you have many more cases brought,鈥� she says. Setzer gives the example of a case won six years ago in the same court room, when the Dutch government was forced to improve weak climate targets after being sued by the Urgenda Foundation representing Dutch citizens. That case preceded聽similar successful cases in Ireland last year, Germany last month and, yesterday, Australia.
鈥淚t is not only litigants who are paying attention to what each are doing. Judges are also reading each other鈥檚 decisions and citing then. The German case cited the Irish and Dutch case. It is travelling,鈥� says Setzer. She says the clear trend in climate litigation is using human rights legislation.
In the short run, the impact for Shell could be profound. 鈥淭hey鈥檇 have to fundamentally restructure their business. It鈥檚 an abrupt switch, very quickly. What impact does that have on a company鈥檚 credit rating and their ability to raise finance?鈥� says Nichols. It will almost certainly be more costly than a pre-planned emissions cut, which may make other firms think differently about future risk, says Benson.
Shareholders are also bringing new pressure to bear on oil and gas firms to transform. at ShareAction in the UK, a charity that promotes responsible investments, says the shareholder votes in recent days are 鈥渉istoric victories鈥� that will 鈥渟end shockwaves through the wider energy sector鈥�. At oil and gas firms鈥� annual general meetings this year, she says the size of votes for pro-climate resolutions has increased. She hopes the board changes at ExxonMobil won鈥檛 be a one-off.
, whose activist investor group, Follow This, brought the resolution passed at Chevron鈥檚 investor meeting says: 鈥淚t鈥檚 more than symbolism. A majority of shareholders say, 鈥楥hevron, you are responsible for the emissions from your products鈥�.鈥� He notes the group has also won similar resolutions with US firms ConocoPhillips and Phillips 66 this month.
A key change, in van Baal鈥檚 opinion, is that investors are increasingly worrying whether their entire investment portfolio is at risk from climate change, rather than what is financially best for a single business they are invested in.
While this week鈥檚 court and investor success are welcome, they are only 鈥渉alf the story鈥� when it comes to making oil and gas companies transform, says at the University of Sussex, UK. To avoid too narrow a focus on individual companies rather than transforming the whole industry, government regulation to end fossil fuel subsidies and stop licenses to drill for oil and gas will also be vital, he says.
For all the legal and investor success against oil and gas firms this week, there was also a reminder today that not everything is going against the companies. Progressive voices on climate action, including ShareAction and Follow This, called today for investors to reject on the grounds it was inadequate. .
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