Oil and Gas Supermajors Have Responsibility to Address Climate Change — Because it’s Good for Business
By Jason Katz-Brown and Danielle Deiseroth
New Data for Progress polling finds that Americans across party lines believe Shell and Exxon have a responsibility to address climate change. In support of recent Exxon shareholder activism, we find that Americans prefer that Exxon commits to net-zero carbon emissions to maximize shareholder value.
Momentous events on Wednesday, May 26 rendered the status quo untenable for two of the world’s supermajor oil and gas producers, Royal Dutch Shell PLC and Exxon Mobil Corporation. That day, Shell, the biggest oil and gas producer in Europe, was ordered by a Dutch court to reduce its carbon emissions by 45% by 2030 (compared to 2019 levels). Shell had argued that climate change is a broader societal issue, and that it wasn't appropriate for the Court to order an individual company to reduce its carbon emissions. The Court ruled otherwise. This ruling will likely set a precedent throughout Europe, with worldwide implications in the oil patch and beyond.
On the same day, in a bid to shift Exxon toward committing to climate goals, activist investors won a shareholder vote to replace three out of twelve Exxon board members with their own picks. Sustainability-focused investment firm Engine No. 1 campaigned for board seats to push Exxon to accelerate its energy transition and set climate commitments, such as reaching net-zero carbon emissions by 2050. While CEO Darren Woods argued that Exxon should continue focusing on boosting their core business of oil and gas production and not commit to an unrealistic carbon neutrality goal, he ultimately lost and must cede one quarter of the board’s seats to the victorious activist campaign.
These historic decisions in both courtroom and boardroom hold immense implications not only for Shell and Exxon, but also for the broader hydrocarbon industry. To assess the attitudes of Americans towards these events, in June 2021 national surveys of American adults, Data for Progress asked respondents several questions about Shell and Exxon, including their responsibility to address climate change and if they should commit to emissions targets. We also asked respondents, as hypothetical Exxon shareholders, if they would prefer Exxon maximize profits by committing to net-zero emissions or by boosting oil and gas production.
Overall, we find that American adults believe Shell and Exxon have a responsibility to address climate change and consequently should commit to aggressive emissions reduction targets, both for the climate and for shareholder value. These conclusions build upon our previous polling showing that more than 8 in 10 likely voters, in a broad bipartisan consensus, think fossil fuel companies have a responsibility to address climate change, and that more than 7 in 10 likely voters agree banks should be transparent to both their investors and the public about their climate risks.
In polling the Dutch court order for Shell to reduce its carbon emissions, we find that American adults side with the Court by a 39-point margin. While self-identified Democrats and Independents strongly agree with the Court’s decision, even Republicans agree that Shell should be required to reduce emissions, by a 3-point margin.
We also asked respondents several questions pertinent to Exxon and the recent shake-up of their board of directors. We find that American adults overwhelmingly agree, by a 41-point margin, that Exxon has a responsibility to address climate change. Consensus is bipartisan: nearly three-quarters of self-identified Democrats (72 percent), a majority of Independents (62 percent), and a majority of Republicans (58 percent) think Exxon has a responsibility to address climate change.
Next, we asked respondents whether they think Exxon should commit to reaching net-zero carbon emissions. By a 30-point margin, American adults agree with activist investors that the company should set a commitment to reach net-zero emissions by 2050. Over three-quarters of self-identified Democrats (76 percent) and a majority of Independents (62 percent) agree that Exxon should set this critical climate goal. While Republicans are nearly split (42 percent support, 45 percent oppose), it is notable that there is such a high level of agreement among Republicans that Exxon — a publicly traded corporation — should set this emissions goal to mitigate their impacts on climate change.
Finally, we asked respondents to imagine themselves as Exxon shareholders: from this perspective, should Exxon maximize profits for shareholders by committing to net-zero carbon emissions by 2050, or by continuing initiatives to boost oil and gas production? By a 14-point margin, respondents prefer that Exxon maximize profits with a net-zero commitment. However, unlike the previous questions, we see a marked difference of perspective by political partisanship. While self-identified Democrats and Independents think Exxon should maximize profits with a net-zero commitment, by 36-point and 27-point margins respectively, Republicans think Exxon should maximize profits by boosting oil and gas production by a 21-point margin.
Climate ambition creates shareholder value
These results demonstrate a powerful consensus among Democrats and Independents that Exxon has a responsibility to address climate change, should commit to net-zero emissions by 2050, and that doing so would be good for business. Meanwhile, the gap between the 42% of Republicans who support emissions reduction targets, and the 31% who think it would benefit Exxon’s shareholders, suggests an opportunity to persuade Republicans that bold climate ambition creates shareholder value.
Activist investors Engine No. 1 made this argument forcefully and successfully. In their investor pitch, they pointed out that Exxon is the world’s 5th largest producer of greenhouse gas — an existential business risk given that two-thirds of emissions come from countries that have pledged to reach net-zero emissions by 2050. Rather than changing its long-term strategy, Exxon had been trying to change the subject, dismissing total emissions reduction targets as a “beauty competition”. Engine No. 1 highlighted that in the 5-year period before their engagement, Exxon total returns underperformed by -45.5% its supermajor peers, most of whom, unlike Exxon, have incentivized management to prioritize clean energy transition. Since Engine No. 1’s engagement, Exxon stock price has outperformed Chevron (whose own inaction spurred another shareholder rebellion).
Engine No. 1’s arguments resonated with the world’s biggest investment managers. CalSTRS, the largest teacher pension fund in the world and significant shareholder of Exxon, declared Exxon “unprepared for the global energy transition” and echoed that taking responsibility for climate change is critical to Exxon’s bottom line: “The links between climate change, business and financial investments are undeniable, and we are taking action to prepare our investment portfolio for the global energy transition while maximizing returns for California’s educators.”
This caps a trend of investors recognizing that bold action toward sustainability, like setting emissions targets, is simply good for profits. BlackRock, the world’s largest asset manager and one of Exxon’s biggest shareholders, wrote in its 2021 letter to CEOs: “Within industries — from automobiles to banks to oil and gas companies — we are seeing another divergence: companies with better [Environmental, Social, and Governance] profiles are performing better than their peers, enjoying a ‘sustainability premium.’”
The federal government is also taking notice of how climate finance reforms in the public sector can prevent a future financial crisis, this time driven by climate change. The Biden administration recently issued an executive order on climate finance — and voters are strongly in favor of these safeguards. With broad public support and now backing from the federal government, it is clear that climate action will be a new presence to reckon with in the boardrooms of Wall Street and corporate America.
Oil and gas companies should take responsibility for climate change — their future profitability depends on it.
Jason Katz-Brown (@jasonkatzbrown) is the CTO of Data for Progress.
Danielle Deiseroth (@danielledeis) is the Senior Climate Data Analyst at Data for Progress.
Methodology
Shell survey: From May 28 to June 1, 2021, Data for Progress conducted a survey of 1,323 adults nationally using web panel respondents. The sample was weighted to be representative of American adults by age, gender, education, race, and voting history. The survey was conducted in English. The margin of error is ±3 percentage points.
Exxon survey: From June 4 to 6, 2021, Data for Progress conducted a survey of 1,202 adults nationally using web panel respondents. The sample was weighted to be representative of American adults by age, gender, education, race, and voting history. The survey was conducted in English. The margin of error is ±3 percentage points.