Over the past month, the oil industry has seen unprecedented pressure to reduce its carbon footprint. For those who have been following the oil industry for the past 100 years, this is arguably the biggest push toward carbon reduction we have seen throughout history.
Exxon, Chevron, and Shell are being forced to uproot their traditional business practices because of activist movements demanding a sustainable future. This is stemming from not only consumers, but employees and investors as well.
Exxon has found 3 climate activists enter its board of directors from a small hedge fund called Engine No. 1. This is on top of Jeff Ubben’s entrance into the Exxon board of directors earlier in 2021. Collectively, these board members see huge upsides in the ability of Exxon to tackle carbon capture issues.
Engine No. 1 holds approximately 0.02% of Exxon’s outstanding shares (about $40-$50 million in total investment), but they have multiple leaders on the board pushing toward a more sustainable future.
You may be wondering, how did an investment in 0.02% of Exxon’s stock yield 25% of their board seats? Engine No. 1 received support from some of the world’s largest pension funds including CalPERS, CalSTRS, and the New York State Common Retirement Fund.
If the large oil companies ignore pressure from leading pension funds, they may see the fallout from investment funds that transition their asset allocation toward more ESG friendly opportunities. Lately, pension funds have been reallocating their market positions toward more sustainable investments.
Over the past few months, Exxon’s management team has emphasized steps it is actively taking toward a lower-carbon future. This includes allocating $3 billion for research around carbon capture and other emissions-cutting technologies earlier this year.
Just last month, Exxon proposed a $100 billion carbon project in Huston. All of these initiatives are stemming from investor’s demands for the companies with the largest carbon footprint to reduce their impact on the environment. These demands from investors are derived from their desire for these large multinational companies to avoid extinction. Over the next decade, the companies that don’t transition toward a sustainable future will fall behind the companies in their industries that do.
If we look back at the past few decades, sustainability initiatives come in direct conflict with Exxon’s 50+ year history of climate change denial. Over that period of time, Exxon invested large sums of money to actively thwart efforts that dealt with climate change.
It is becoming increasingly obvious that the events over the past few months have created an inflection point for the large oil companies that want to be included in the sustainable future that the people on this planet both need and desire.
The team at Engine No. 1 claims that Exxon’s future financial stability is dependent on the company diversifying its operations beyond oil and other petrochemicals to more energy-focused business operations. Engine No. 1 is recommending 4 reasonable recommendations to the board of directors.
Options 1 and 4 are more focused on corporate governance, while options 2 and 3 seem to focus on strategies with sustainable outcomes.
It has become crystal clear that activist investors focused on big oil companies can make a meaningful impact if they approach their targets with sensible deliverables that drive value.
Royal Dutch Shell PLC has been ordered by a court in the Netherlands to slash its greenhouse gas emissions by 45% by 2030 from 2019 levels. The decision by The Hague District Court is a huge step in the right direction for climate activists.
This is the first time a judge has ordered a large polluting corporation to comply with the Paris Climate Agreement. A ruling like this could set the precedent that big polluters will be held accountable for their impact on the environment.
The Dutch arm of the organization “Friends of the Earth” called Milieudefensie filed the lawsuit in 2019. The complaint argued that Shell’s business operations violated human rights laws in the European Union and the Netherlands. Over time, 6 environmental groups and 17,000 Dutch citizens joined the complaint.
Like most large companies, Shell has already committed to reaching net-zero emissions by 2050. As a short-term goal, they had also committed to a 20% reduction in carbon footprint by 2030. But, this was not enough to eliminate scrutiny from a population of climate activists who want to create a sustainable planet for future generations.
Although Shell immediately indicated plans to appeal the ruling to the Supreme Court of the Netherlands, many believe this effort is simply delaying the inevitable.
A spokesperson for Shell claimed, “We are investing billions of dollars in low-carbon energy, including electric vehicle charging, hydrogen, renewables, and biofuels.” It seems like the management team at Shell is well aware of the transition toward a more sustainable business model. No matter how much they try to push back, at this point, it’s only a matter of time.
The ruling emphasized Shell’s need to take more accountability for Scope 3 emissions. These are the emissions generated by customers and suppliers of Shell’s petroleum products, such as drivers that fill their cars with gasoline at Shell stations around the globe.
At the Shell group, approximately 85% of its emissions are Scope 3. This means that only 15% of the emissions come from the production and distribution of gasoline. The other 85% is caused by the consumer that is reliant on a petroleum engine to get from point A to point B.
Many are drawing the implications of Shell’s Scope 3 emissions to the tobacco industry where producers became increasingly liable for the choices of their customers. The big tobacco companies were recently forced to pay $206 billion for deceiving consumers about the harmful health effects of smoking cigarettes.
The parallels between big oil and big tobacco go back decades. The major developments taking place today in big oil reflect an increasing awareness of the obligations fossil fuel companies have to address the emissions that are tied to their products within each part of their value chain.
On the same day that Exxon started losing board members to Engine No. 1, the shareholders at Chevron voted 61% in favor of the proposal to cut Scope 3 emissions. Much like the situation with Shell, Chevron is being called to take accountability for the carbon emissions created by consumers who purchase their products every day.
The proposal did not require specific targets on how much emissions Chevron needs to cut, or by when. But, the recent move shows the trend line of investors who are frustrated with companies that aren’t doing enough to tackle climate change.
Much like Shell, a majority of Chevron’s carbon footprint stems from Scope 3 emissions. For years, these companies have tried to avoid taking accountability for the actions of their customers. While 3 of the big oil companies are pushing back against these changes, they are fully aware that long-term change toward a sustainable future is inevitable.
Many of these oil companies are frustrated with these new measures imposed upon them because they feel it will affect future operations, earnings, and cash flows. Unfortunately for them, the court of public opinion believes that sustainability will drive long-term profitability.
These changes to the large oil companies are all happening right in the middle of the largest oil pipeline project in North America getting permanently shut down. During Joe Biden’s first days in office, he withdrew the permits for the Keystone XL pipeline, which was meant to transport oil from Western Canada to the Texas gulf coast.
The Keystone XL pipeline was a decade-long project that put North American communities, tribal lands, and our environment at risk. Just this week, the developers, TC Energy, confirmed the termination of the project. This is considered a major victory for environmentalists after a fight that lasted more than 10 years.
Legacy oil companies have been able to operate unhindered for decades. The last time an oil company was stopped in its tracks, Standard Oil was broken up into 34 separate companies. Since then, many of these companies have actually re-merged together (Exxon Mobil and Chevron are two of the largest Standard Oil descendants). The other two large spin-offs from Standard Oil include Marathon and BP.
The reality is, these names are seen on nearly every street corner in cities across the world. These companies provide the fuel to the cars, boats, and planes that transport goods and people across borders. Without their operations, many of us would still be stuck in the small towns we grew up in.
Although these legacy companies and their leaders are resistant to change, they know it can only be avoided for so long. With today’s modern technology, it’s easy to quantify carbon emissions for large, publicly traded companies.
Although each of these big oil companies has annual sustainability reports, it is not enough. Investors, customers, and the next generation of leaders are demanding that the companies with the largest carbon footprints step up to the plate for the good of the environment.
Most of today’s top business leaders are under the belief that sustainability doesn’t have to come at the cost of profits. In fact, a properly executed sustainability strategy can expand the upside potential of a publicly-traded stock by orders of magnitude.
These changes forced by the hands of shareholders and governments that oversee big oil companies are showing the world how sustainability must be front and center of a corporation’s strategy. Sustainability is no longer an afterthought. Many believe that sustainability will be the heartbeat of the 5th industrial revolution (also referred to as Industry 5.0).
As time moves on, changes to corporate sustainability strategies are happening quicker than ever. Investors, customers, employees, communities, and governments are all expecting their business leaders to make decisions that make all stakeholders excited about a company’s impact and future. This is one of the main reasons why sustainability has become a core focus for a company’s strategy throughout each part of its value chain.
As a society, we must start to ask ourselves, if the big oil companies are transitioning toward a more sustainable future, are we doing enough to lead our respective industries toward more environmentally friendly, long-term solutions?
The big oil companies are some of the largest producers of carbon emissions on the planet, and they are stepping up to the plate to reduce the negative effect they have on our environment. This means each of us needs to take the bull by the horns and seek sustainable solutions that our corporations and communities can adopt today.
One of the least sustainable industries on the planet has recently announced a series of paradigm shifts in its business models. The big oil companies are looking for new tactics they can implement to reduce their carbon footprints. Historically, large oil companies have not been able to find a feasible alternative that meets the scale and cost of petroleum. This has left the world between a rock and a hard place. Fortunately, Heartland is the company best positioned to help the big oil companies and their customers.
The big oil companies have large investments devoted to different derivatives of petroleum. One of the main petrochemicals that oil companies have commoditized is plastic. Every year across the globe, we use over 500 billion pounds of plastic, all made from petroleum. This is a hard problem to tackle overnight.
What most people don’t realize is that the plastic they use every day has a lot of additives inside of it, which is a great place to start solving the problem.
Heartland’s business model is focused on providing hemp-based materials that replace toxic additives in today’s plastic with sustainable alternatives. In fact, our business model is focused on hemp materials engineered for polymers.
We are able to help large oil companies create stronger, lighter, cheaper, and more sustainable plastics by leveraging hemp as an additive. These plastics end up getting used in manufacturing across all different types of industries. To be clear, we are not focused on making the plastic itself. We are focused on providing bio-based additives that modify the performance of plastics. These additives include:
Our team can work alongside oil companies to enhance the performance properties and reduce the carbon footprint of the plastics they’re already producing. In fact, the best version of their plastic includes our product.
The oil companies can leverage partners like Heartland to provide tangible solutions to reduce their carbon footprint and create a new value proposition that has never been seen in the marketplace.
Over the next few years, the oil industry can utilize our industrial hemp supply chain to satisfy the demands of investors, customers, employees, governments, and the communities they operate in.
If the oil companies decide to work as a partner alongside Heartland, they have the opportunity to start to transition toward the sustainable future that all their stakeholders are asking for.
Join us as we build a world out of hemp.
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