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Corporate Climate Judgment Day

Corporate Climate Judgment Day

Saturday, 5 June, 2021 - 06:45
Najib Saab
Secretary-General of the Arab Forum for Environment and Development (AFED) and editor-in-chief of Environment & Development magazine

The predicaments that have beleaguered some of the major global oil companies – in courts and within their own boardrooms – have proven beyond doubt that they will no longer be able to ignore the facts of science, rule of law and the pressure of public opinion.

The recent developments also showed that Saudi Arabia, the largest oil exporter in the world, was right in initiating its proactive policies, not only in terms of committing to the provisions of the Paris Climate Agreement and the reduction of carbon emissions from its oil industries, but also by advancing doable alternatives. This was evident in the Circular Carbon Economy, Green Saudi Arabia and Green Middle East initiatives.

It is now evident that the future is for countries and companies that have prepared themselves for a new era, in which the environment, climate change and sustainable management of natural resources are at the top of the agenda.

The recent ruling by a Dutch court ordering the British-Dutch multinational oil and gas company Shell to abide by the provisions of the Paris Agreement set a precedent in this field. For the first time, a national court issued a ruling ordering a private company to accelerate its action to secure the achievement of the objectives set by an international agreement.

Usually, governments are responsible for implementing such agreements through laws, taxes and fiscal measures fairly imposed on all concerned. In this case, a group of environmental NGOs along with 17,000 Dutch citizens sued Shell to force it to take measures to accelerate the reduction of carbon emissions from its operations – including those of suppliers and customers – by 45 percent before 2030. The company's prior commitment to reduce 20 percent in 2030 and 45 percent in 2035, on the way to achieving zero emissions by 2050, was not convincing enough for the plaintiffs.

The company's lawyers objected on the grounds that Shell is a global company competing with others in the same field, meaning that singling it out with restrictions would hurt its competitiveness. However, the plaintiffs responded that Shell had previously supported an awareness campaign launched by the Dutch government under the slogan A Better Environment Starts with You. If this slogan applies to individuals, they argued, then companies should adhere to it as well, even at the expense of reducing their profits. The plaintiffs said that while in the past companies’ prime goal was to make more profits for investors, it was high time that society and the environment enjoyed the returns as well.

It is certain that Shell will appeal the ruling and a higher court is likely to overturn it, but the mere fact that the ruling was made sends a strong signal of a radical change in the way these matters are viewed. On the same day the Shell ruling came out, investors in the US oil company Chevron voted on a decision to reduce not only its own carbon emissions but also those from the operations of its customers. Major companies that were considered national icons immune to public scrutiny are now under the rule of law and people’s accountability. While courts used to refuse to even accept such claims, assuming that the plaintiffs were not directly affected, Dutch judges considered everyone affected by climate change to be a rightful complainant.

In court testimonies, young people accused Shell of destroying their future by failing to act on climate change. Earlier, a Dutch court issued a ruling that held Shell responsible for the damage caused by its operations in the Niger River Basin, and ordered it to pay compensation to the farmers affected.

The irony is that both Shell and Chevron are under scrutiny now while both were pioneers in diversifying to renewable energy starting over 25 years ago. The companies also seemed to have a good track record regarding supporting social responsibility programs around the world, at levels exceeding most competing companies. However, it seems that half measures are no longer sufficient, and what is required today is a full commitment to seriously address climate change.

While the reasonable climate record of Shell and Chevron did not protect them from a flurry of demands for bigger and faster measures, ExxonMobil suffered a veritable coup by a group of investors within its board of directors. The opposition groups blamed the company’s poor performance in recent years on the large expansion of investments in fossil fuels, while neglecting investment in efficiency technologies and reducing carbon emissions, as well as renewable energy. The activist investors succeeded in persuading the majority of shareholders that the decline in the company’s business and its record loss of $20 billion in 2020 were due to the delay in diversifying its activities and not entering the renewable energy markets and addressing carbon emissions, in addition to a failure in implementing robust social responsibility programs.

Surprisingly, the climate campaigners, who represented a minority stake as investors, succeeded in getting their candidates on the board of directors. This happened despite the fact that Exxon conducted a multi-million dollar counter public relations campaign to convince investors of its plans and to discredit the campaigners, warning of the danger they posed to the company’s business and shareholders’ dividend. The presence of the new members on the board will undoubtedly force Exxon to succumb to the strong signal from investors that climate change should be given greater prominence in the company’s policies and business.

These events reminded me of a day back in September 2004, when then Exxon CEO Lee Raymond spoke at the Organization of the Petroleum Exporting Countries (OPEC) conference in Vienna, boasting that his company had achieved the highest profits among competing oil companies. This was, according to Lee, because Exxon did not waste time, effort and money in experimenting with renewable energies and reducing carbon emissions. Although Raymond left Exxon in 2005, he lived to witness the Day of Judgment: his categorical refusal at the time to invest in cleaner and renewable energy, in addition to carbon-reducing technologies, drove the company to unprecedented levels of losses today.

Corporate judgment day was preceded by the announcement of G-7 that the group of leading industrial countries will stop financing coal-fired electricity plants that emit carbon by the end of this year. The group also renewed their commitment to reduce emissions, as stipulated by the Paris Agreement.

When climate change alters the way in which major oil companies have traditionally operated, this is a major warning that the time of “business as usual” is over for good.

Najib Saab is Secretary General of the Arab Forum for Environment and Development- AFED and Editor-in-Chief of Environment & Development magazine

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