How the events of May 26 could change the path of Big Oil—and the climate

It may have seemed like an ordinary Wednesday, but May 26, 2021, will go down in history as a tipping point in the fight against climate change. It was the day that three oil and gas majors were sharply rebuked by climate activism—a day that will forever change the operational, legal, social, and financial landscape for this sector.

What Happened

ExxonMobil fought—and lost—a battle against the small activist investor fund Engine No. 1. Some of the world’s largest asset managers, including BlackRock, State Street, and Vanguard, with nearly $20 trillion combined assets under management, backed three of the activist fund’s proposed board candidates, who will push the oil company toward more renewables. The nominees, Gregory Goff, Kaisa Hietala, and and Alexander Karsner were approved by shareholders, all of this after Exxon spent $35 million to thwart the effort.

Earlier in the day, Royal Dutch Shell was ordered by a court in its homeland of the Netherlands to cut carbon emissions by 45% from 2019 levels—and accomplish this feat by 2030. That’s only nine years to cut carbon nearly in half. The court sided with the plaintiff (Friends of the Earth, plus about 17,000 citizen co-plaintiffs) in finding that Shell’s plan, backed by shareholders last month, to cut the carbon intensity of its products by 20% by 2030 and go net zero on emissions by 2050 was not good enough.

And finally, Chevron’s annual meeting wrapped up the historic day when a shareholder resolution to force the company to cut its Scope 3 emissions—greenhouse gases released by the use of the oil, gas, and other products it sells—passed with a stunning 61% of the vote.

“Game-changer is an overused metaphor, but surely this is one,” Environmental Defense Fund President Fred Krupp said of the day’s events. “The policy environment for companies has already changed and will change more.”

What it means

With pressure from investors, courts, and customers, the events of May 26 signal the end for the big oil and gas companies resisting the push to decarbonize. These companies, along with many others, were slow to act to stem the accelerating climate crisis, and now they are scrambling to align with the new reality. That reality, in a word, is accountability.

We’ll see the practice of publishing loosely defined environmental improvement goals replaced with science-based reduction targets demanded by shareholders and enforced by regulators. Monitoring, managing, and mitigating climate risks will be table stakes. And, as these companies begin to be held accountable for their carbon emissions, a dirty, but not so little, secret of carbon measurement will be exposed: Much of the carbon footprint information reported to date by this industry is, at best, unverifiable.

What’s next

So, while the events of May 26 crossed a threshold, now the real work begins. Oil and gas companies must develop and disclose verifiable carbon footprints, establish ambitious goals guided by climate science, and plan for the transition to a low-carbon economy. Even global behemoths like Exxon, Shell, and Chevron today use processes that are dependent on spreadsheets. Going forward, these old ways will be replaced by modern technology to provide up-to-the minute, reliable (and auditable) carbon information that can be forecasted across the entire value chain. We will also see a slew of new hires who bring financial and technology acumen to sustainability operations.

The good news is that carbon accounting—the practice of managing and tracking carbon emissions as you would your financials—is well established. At 20 years old, the Greenhouse Gas Protocol is the de facto global standard to measure greenhouse gas emissions from private- and public-sector operations.

In the aftermath of these landmark decisions, beware of new claims of “carbon neutrality” or “net zero” carbon emissions. Without rigorous assured calculations, a defined strategy, interim milestones, full transparency, and consequences for violation, these claims are meaningless “green wash” and “goal wash.”

Kentaro Kawamori is the CEO and cofounder of Persefoni AI; Tim Mohin is the company’s chief sustainability officer.