Four seismic climate victories show major oil, gas and coal companies running out of places to hide
Three global fossil fuel giants have just come under embarrassing blame for their inadequate action on climate change. Collectively, the developments show how the courts and frustrated investors are increasingly willing to force companies to quickly reduce their carbon dioxide pollution.
A Dutch court has ordered Royal Dutch Shell to reduce its greenhouse gas emissions, and 61% of Chevron shareholders have backed a resolution to force the company to do the same. And in anger at Exxon Mobil, an activist hedge fund won two seats on the company’s board.
The winning streak was followed Thursday in Australia by a court ruling that the Federal Environment Minister, when deciding whether or not to approve a new coal mine, has a duty of care to young people to avoid cause them injuries due to climate change.
Court decisions are particularly important. Courts have often been reluctant to interfere in what is seen as a matter best left to policy makers. These recent judgments, and others, suggest that courts are more prepared to look at companies’ emissions reduction and – in the case of the Dutch court – to order them to do more.
Court warns of “ irreversible consequences ”
In a first global ruling, a court in The Hague ordered oil and gas giant Shell to reduce its CO₂ emissions by 45% by 2030, from 2019 levels. The court noted that Shell had no emission reduction target until 2030 and that its policies until 2050 were “rather intangible, undefined and non-binding”.
The case was brought by climate activists and human rights groups. The court ruled that climate change due to CO₂ emissions “had serious and irreversible consequences” and threatened the “right to life” of man. It also concluded that Shell was responsible for the so-called “Scope 3” emissions generated by its customers and suppliers.
The Chevron upheaval led to an investor revolt. About 61% of shareholders backed a resolution calling on Chevron to significantly reduce Scope 3 emissions generated by the use of its oil and gas.
And last week, shareholders of ExxonMobil, one of the world’s largest greenhouse gas emitting companies, forced a dramatic management shake-up. An activist hedge fund, Engine No. 1, won two, and potentially three, seats on the 12-person board.
Engine # 1 explicitly links Exxon’s uneven economic performance to a failure to invest in low-carbon technologies.
Climate-sensitive shareholders unite
As human activity causes the Earth’s atmosphere to warm, large fossil fuel companies are under increasing pressure to act.
Barely 20 companies contributed 493 billion tonnes of CO₂ and methane to the atmosphere, mainly by burning their oil, coal and gas. This is equivalent to 35% of all global greenhouse gas emissions since 1965.
Shareholders – many of whom are concerned about the financial risks of climate change – are leading the corporate responsibility movement. The Climate Action 100+ initiative is a prime example.
It involves more than 400 investors with more than A $ 35 trillion in assets under management, who work with companies to reduce emissions and improve governance and climate-related financial reporting. Similar movements are emerging around the world.
Australian shareholders are also stepping up their engagement with companies in the face of climate change.
Last year, shareholder resolutions on climate change were submitted to Santos and Woodside. While neither of the resolutions garnered the 75% support needed to pass, both received unprecedented levels of support – 43.39% and 50.16% of the vote, respectively.
And in May 2021, Rio Tinto became the first Australian board of directors to publicly support shareholders’ resolutions on climate change, which were subsequently passed with 99% support.
The litigation trend
To date, the question of whether polluting companies can be legally forced to reduce their greenhouse gas emissions has remained unanswered. While fossil fuel companies have faced a series of climate-related lawsuits in the United States and Europe, courts have often dismissed the claims on procedural grounds.
Lawsuits against governments have been more successful. In 2019, for example, the Dutch Supreme Court ruled that the government has a legal obligation to prevent dangerous climate change.
The decision against Shell is important and sends a clear signal that companies can be held legally responsible for greenhouse pollution.
Shell has already argued that it can only reduce its absolute emissions by reducing its operations. The recent case shows how these companies may have to quickly find new forms of income or face legal liability.
We are unlikely to see identical disputes in Australia as our laws are different from those in the Netherlands. But the Shell case is emblematic of a wider trend in climate litigation to challenge polluting companies.
This includes the case decided on Thursday involving young people opposed to a company’s coal mine expansion, and Australian affairs arguing for greater disclosure of climate risk by companies, banks and super funds.
Change is near
Oil and gas companies often argue that Scope 3 emissions are beyond their control because they do not control how customers use their products. Shell’s conclusion and shareholder action against Chevron suggest this claim may hold little weight with courts or shareholders in the future.
The Shell case can also trigger a worldwide avalanche of copy litigation. In Australia, legal experts have noted the tide has turned and warned that it is only a matter of time before administrators failing to act on climate change face litigation.
Clearly, a seismic shift is looming, in which businesses will be forced to take greater responsibility for climate damage. These recent developments should serve as a wake-up call for oil, gas and coal companies in Australia and around the world.
/ Courtesy of The Conversation. This material is from the original organization and may be ad hoc in nature, edited for clarity, style and length.