My goal for the two What to Watch series this year has been to be your early-warning system for the social risk trends for which your company should be planning. How right have I been – and how fast has reality accelerated to surpass my predictions? Let’s find out.
Both of these things are true:
- The oil and gas industry is increasingly embracing a forward-looking conversation on climate, carbon, and a decarbonized energy future.
- The headwinds worth watching continue to advance, raising expectations on North America’s oil and gas industry.
I felt like I was stepping out on a limb when I wrote several of my What to Watch predictions. But in a couple of cases, I underestimated just how swiftly the North American conversation on energy, environment and climate is evolving. Here are the topics I now want to move to the top of your watch list with some updates and new developments.
- Climate reporting. Back in May, we looked at how investors are engaging directly with companies on their environmental, social and governance (ESG) programs. As a result of this investor engagement, some of North America’s large independents are stepping away from the pack to address climate change and risk proactively in new annual reports. It’s worth studying the following three:
- Occidental Petroleum’s 2019 Climate-Related Risks and Opportunities: Positioning for a Low-Carbon Economy. The report articulates their carbon-neutral aspiration, charts progress on 2018 commitments, and is organized in the framework recommended by the Task Force on Climate-related Financial Disclosures (TCFD).
- Noble Energy issued their first climate resilience report in 2019 as well.
- TC Energy, previously known as TransCanada, also released an inaugural sustainability and climate change report this year.
- Divest success. As I shared with you in June, I hold a reluctant respect for the growing power of the divest-from-fossil-fuels movement. When I wrote that issue, the divest movement had targeted $10 trillion dollars by 2020. Instead, they surpassed $11 trillion this year.
- Shareholder resolutions. As we discussed over the summer, resolutions focused on climate, methane, and decarbonization are growing in both frequency and success rates. Shareholder resolutions focused on climate and sustainability have continued throughout 2019; what is new is that an overwhelming number (17) have been resolved by the targeted companies who are committing to either a specific action (such as a climate report) or dialogue with the resolution proponent.
- Public figure opposition. As recently as this summer (when I covered the role of public figures) I could not have predicted the effect the Democratic primary would have on the energy and climate conversation. Four of the top contenders have favored a ban on fracking, for example. The nature of this dialogue around energy and the environment is an unfortunate accelerator toward a no fossil narrative. Check out Resources for the Future’s (RFF) excellent candidate tracker here.
- Aspirational regulatory changes. When I covered policy that set an ambitious climate and decarbonization agenda without a specific pathway in June, New York was looking at its regulations. Indeed, New York passed the most ambitious state plan yet, targeting emission-free electricity by 2040 and 85 percent reduction in economy-wide emissions by 2050. Notably, the act specifies that state agencies take climate goals into consideration in all permitting decisions.
- International development institutions. Sadly, organizations such as multilateral development banks (i.e., the World Bank) continue to drive climate and decarbonization agendas divorced from development reality since I covered this topic over the summer. In November, the European investment bank declared its intention to no longer support fossil fuel projects (including natural gas!) after 2021. 2021 was notably negotiated by European bloc members who need access to natural gas.
- NEW: Climate activism is increasingly anti-gas. Since completing the What to Watch Series, two anti-natural gas campaigns have emerged:
- Bloomberg Philanthropies has invested $500 million in Beyond Carbon, the self-described “largest coordinated campaign to tackle climate change ever undertaken in the United States.” They have targeted: winning on state and local policy; using successful strategies from Beyond Coal to prevent a rush to increased reliance on oil or gas anywhere in the economy; and electing climate champions. I probably don’t need to tell you that Bloomberg is running for president.
- Earthjustice has created the Zero to 100 campaign. Their components include: “using the legal system to target polluters”; “advancing clean energy solutions’; “protecting public health”; and “fighting for justice for the planet and its people”.” Earthjustice is also involved in the Bloomberg Beyond Carbon effort. A major component is to “move beyond fossil fuels” by: keeping fossil fuels in the ground and “stopping the rush to gas.”
- NEW: Zombies do not appear to pose existential threat to humanity. Good news! It looks like the zombies (allegedly) created by fracking have not, in fact, ended life as we know it.
It matters because:
If it feels like opposition to oil and gas is moving fast and multiplying, it is. Each new front creates a different kind of social risk for your company — one you need to plan for comprehensively.
The critical mistakes companies are making:
Seeing the oppositional fronts each as an isolated and limited political effort rather than the cultural revolution that it is.
Seize the day. Ignorance is only bliss for so long. Successful companies will assess their social risk on these fronts. At Adamantine, we suggest that you pull together a diverse strategic team to review:
- Shareholder and institutional investor pressure on your peer companies;
- Aspirational regulatory changes driving energy policy and perception where you headquarter and operate;
- Anti-gas, climate, divest, and local community organizing where you headquarter and in your operating areas;
- 2020 implications for federal, state, and local election that may affect your business;
- Signs of zombies; and,
- Assumptions in your planning that underestimate your company’s social risk.
For each area, your team should explore your exposure, visible threats, anticipated actions, and the steps taken by your peer companies. Successful companies will look for the opportunity these risks can create for your business. When your company is ready to act, call us at Adamantine – we would love to help you with your assessment and strategic response.
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