I hear you! Readers have let me know that it’s frustrating that the industry has to think, talk, and engage on climate differently. There’s so much said in the mainstream energy and climate conversation that is unfair and misleading—and it’s understandable you want to push back. My focus, too, used to be on mobilizing the industry to engage its opponents and the public on the facts. While facts are still on our side, we need to recognize that tactic is no longer enough.
Both of these things are true:
- All energy requires tradeoffs, and the caricature of oil and gas as fossil fuels of the past oversimplifies our global energy needs and grossly misrepresents the relative tradeoffs of oil and gas and alternatives.
- To credibly engage in the conversation about energy reality, you have to have a seat at the table, and to have a seat at the table, you need to be fluent in climate.
problem path forward:
A few months ago, as we started the research to support this series, I did not expect any meaningful acknowledgment of climate change or embracing of solutions from the mainstream oil and gas industry. What I did expect was an acknowledgement of public concern and global expectations.
Instead, as our research has evolved, we found international majors and large independents are joining the climate and decarbonization conversation in a really big way. At Adamantine, we are seeing unmistakable signs that this trend will increase pressure on your company to consider your own public stance – and we suggest you do it before someone asks you what it is.Here’s what’s out there:
- Shell is arguably the farthest along in talking about climate and decarbonization proactively. (They are also arguably under the most public pressure.) Their Net Carbon Footprint Ambition web page is worth checking out; spend two minutes on the video to get the idea. It’s pretty much a prototype for bridge building around climate while keeping realism on hand.“Shell is a big company that supplies around 3% of the energy the world uses. We want to play our part and contribute to the global effort to tackle climate change and meet the goal of the Paris Agreement. Working towards our Net Carbon Footprint ambition is how we plan to do this.”
- As mentioned previously, Chevron’s website articulates: “We proactively consider climate change in our business decisions.” They’ve charted a nice middle path with their climate-page: “Chevron shares the concerns of governments and the public about climate change and believes that encouraging practical, cost-effective actions to address climate change risks while promoting economic growth is the right thing to do.” In 2017 and 2018, they also published detailed disclosures on their climate change strategies: Managing Climate Change Risks: A Perspective for Investors and Climate Change Resilience: A Framework for Decision Making.
- We’ve already covered come of Equinor’s and Total’s efforts in this area in previous emails, so I’ll transition to some of the US large independents.
- Occidental Petroleum is unique among large independents in that it has created a 2019 report entitled Climate-Related Risks and Opportunities: Positioning for a Low-Carbon Economy. More than any of the other large independents, Oxy is fluent in the language of climate and decarbonization. This is most evident in their aspiration to become a carbon-neutral company. I suspect in a couple of years this aspiration will be the new norm.
- Devon has a climate change page on their website and has done a risk assessment of their exposure to climate change, probably as a result of a negotiation with shareholder activists, who brought resolutions for a two-degree analysis to Devon for five consecutive years. See how those votes progressed in the figure below. This upward curve is a good reminder of how shareholder resolutions are driving company change on climate, discussed in a previous Both True issue.
- Also noteworthy, because of its symbolic sea change, is the U.S. Chamber of Commerce’s recent acknowledgement on their website addition Addressing Climate Change. “The climate is changing and humans are contributing to these changes. We believe that there is much common ground on which all sides of this discussion could come together to address climate change with policies that are practical, flexible, predictable, and durable.” What really surprised me? Their definitive conclusion: “Inaction is not an option.”
- And then there is API. Yeah, no, just kidding.
It matters because:
Oil and gas companies are normalizing talking about climate and decarbonization in the context of their businesses. Your investors, regulators, and communities made that shift a while ago, so they are going to expect you to understand the lingo and have an opinion.
The critical mistakes companies are making:
Approaching climate through the prism of political identity. For the purposes of running your business, it doesn’t matter where you live, what your politics are, or how your peer group talks and thinks about climate. Your company is facing social risks that you need to mitigate, and that means being able to talk to your stakeholders about climate. Save the science and cause debates for your next happy hour with friends.
Seize the day. Successful companies will:
- Listen and follow along. These conversations appear optional at the moment, but if you are watching the shareholder resolutions driving companies like Devon, Noble, and Oxy to address climate risk, you will see that the external drivers (of which resolutions are just one) are growing and not going away. At a minimum, watch how the majors and then the large independents are engaging on climate and decarbonization – it’s your best weather forecast for what’s coming to you.
- Incorporate this topic into your risk analysis. How is external pressure to talk about climate and carbon affecting your peers? What is the level of interest from your investors, regulators, and communities? Once again, it would be prudent to include this topic in your social risk analysis for your business.
New developments with the international oil and gas majors’ and large independents’ response to climate and carbon pressure are happening fast. You can get caught up on the four prior installments of this series with What to Watch Majors, Topic 1 – Tech Investments, Topic 2 – Decarbonization Commitments, Topic 3 – Policy Commitments, and Topic 4 – Alignment with Your Trade Associations.
Did I miss your company’s proactive response? Message me and tell me about it.
If this post was forwarded to you, you can subscribe to Both of These Things are True here.