On Friday last week, Occidental Petroleum approved a shareholder resolution requiring the company to assess the “financial risks” of a “lower carbon economy.” The resolution, which passed at the company’s annual meeting, was first time the stockholders of any U.S. oil company “successfully required a climate stress test,” according to ClimateWire.
The resolution directs management to report on the impacts of “plausible scenarios” to “address climate change,” such as the International Energy Agency’s “450 Scenario,” which describes an “energy pathway” consistent with the Paris Agreement’s goal of limiting the increase in global temperatures to 2 degrees Celsius.
Since the early 2000s, so-called socially-responsible investors have introduced similar resolutions at shareholder meetings of ExxonMobil and other large fossil fuel companies. The sponsors always claim their goal is to “protect shareholder value” by informing stockholders how climate mitigation policies could affect the firm’s financial health. As if investors in ExxonMobil are unaware of the climate movement’s hatred of the company, or don’t see financial risk in policies designed to penalize fossil energy production and use.
The same sponsors of the climate-related shareholder resolutions are, of course, among the most vociferous proponents of carbon taxes, cap-and-trade, renewable energy quota, and assorted “keep it in the ground” policies that create the financial risks the reports are to assess.
Here’s the game they play. First, climate campaigners lobby for policies that aim to bankrupt fossil energy companies. Then, they demand the companies report on the financial risks those policies entail. They do so in the expectation that such disclosure will hasten the companies’ demise, in three ways.
First, the reports will tend to scare away investors, depressing stock values. Second, activist attorneys general and others in the eco-litigation fraternity will cite the reports as proof the companies have been “hiding” financial risks from shareholders all along. Third, as the targeted firms dwindle in wealth, market share, and number, so will their ability to defend themselves against further predation.
As President Trump deliberates on whether to stay in the Paris Agreement or pull out as promised, he should take note of the Agreement’s pride of place in the Occidental shareholder resolution. The resolution specifically cites the Agreement and the resulting “increased likelihood of public policy action” on climate change as the reason “investors require analyses regarding the potential impact [of such policies] on Occidental’s resources.”
Indeed, the Paris Agreement is energizing the whole socially-conscious investor movement. As JustMeans.com reports:
More 2016 shareholder proposals than ever before address climate change—94 compared with 82 in 2015. Of the resolutions, 22 ask energy extractors and suppliers to detail how the warming planet will affect their operations and how they will respond if governments follow through with commitments made in the Paris climate treaty in December to keep fossil fuel assets in the ground to prevent damaging temperature increases. A further 18 resolutions focus on the risks from using hydraulic fracturing to extract energy from shale deposits, including 12 seeking methane reduction targets. Nineteen resolutions ask companies to set greenhouse gas emission reduction targets. The climate slate is rounded out by another 11 proposals that include a push to change energy reserves accounting at two companies and one suggesting executive bonuses should be linked to fossil fuel reserves accounting changes.
Emission reduction pledges under the Paris Agreement are “non-binding,” but that does not mean they will have no political or legal consequences. The idea that Trump can repudiate his promise to withdraw from the Agreement and not empower those seeking to divide and conquer the fossil fuel sector is naïve.
Numerous major U.S. companies, including several oil companies, are pressing Trump to stay in the Agreement. No surprise there. President Obama fooled them into believing there’s no turning back from the global climate agenda. Many Swamp dwellers still can’t believe Trump is president, and view him as no more than a bump on the road to a carbon-constrained future. As long as oil companies think the writing is on the wall, they will appease their tormenters rather than fight back.
Energy producers will stand up for themselves only if Trump shows, by his actions, that he will fight for them. Trump campaigned to replace Obama’s “war on coal” with energy policies that put America’s interests first. But he can succeed only if he makes clear, to friend and foe alike, that on his watch, the U.S. government will no longer patronize the politics of plunder. The clearest and strongest action he can take to that end is to pull the plug on the Paris Agreement.