Selfish or myopic? Exxon and Chevron's latest climate change statements are surely disturbing
The two largest North American oil and gas companies, Chevron and ExxonMobil, recently held their annual meetings in the midst of a historic drought in California, a heat wave in India that is claiming thousands of lives, and unprecedented storms and flooding in Texas. It was at these meetings and in this context that both companies put their stakes in the ground on climate change – and it’s not encouraging. The time for platitudes and friendly but ambiguous statements about recognizing the “serious” nature of climate change were cast aside as we got a disturbing look at how Chevron and Exxon really plan to play out the end game on fossil fuels.
As shareholders sat in a highly secured auditorium on the Chevron campus in California, CEO John Watson commanded the stage…and the microphones. Shareholders were allowed two minutes to present pending resolutions before their microphones were silenced. Watson could respond at his leisure and had at his disposal pre-prepared PowerPoint slides and videos that were not subject to rebuttal or even closer examination.
Halfway across the country, in an equally secured venue, Exxon convened its annual meeting in Dallas. After board directors had been introduced, the lights were turned off in their section until faith-based investor Sister Patricia Daly asked that they be re-illuminated for her presentation of a shareholder resolution calling for science-based greenhouse gas (GHG) reduction targets. Perhaps Exxon thinks board members should be treated like mushrooms, as the old saying goes.
The CEOs of Chevron and Exxon have created an echo chamber to amplify their messages and insulate their boards and shareholders from the reality that is beginning to catch up with the oil industry. Despite taking painful earnings hits over the last two quarters, John Watson and Rex Tillerson were bullish about the future of their companies and the future of oil and gas.
In response to a shareholder proposal to re-direct capital away from costly high-carbon extraction projects and higher investor dividends, Watson pointed to his company’s 27 consecutive years of providing dividends. He failed, however, to mention the company’s current negative cash flows and decision to take on more debt even as analysts project that $70-a-barrel oil would still not allow the company to stabilize its cash flows.
Watson claimed that recent oil price drops are no different from the many downturns that he has seen over his 34-year career. In fact, he insisted that his experience will ensure Chevron weathers this passing storm. In response to a well-reasoned plea by Sister Susan Vickers urging the company to establish GHG targets, Watson responded that if they cared about the poor then they should recognize that the path to prosperity has run through fossil fuels for the last 150 years – and that it still does.
This logic is flawed. The world has changed dramatically in the past 150 years, and clean energy technologies have advanced even more rapidly in the last 10 years than anyone had expected. Fossil fuel companies are not only at risk because of falling oil prices and the promise of stronger carbon-reducing policies, but perhaps even more importantly, they face existential threats from the falling costs of renewable energy, energy storage breakthroughs and other trends that point to a true low-carbon power system. Even the oil minister for Saudi Arabia is talking about moving from exporting oil to exporting solar energy.
Tillerson’s response to shareholder questions on climate demonstrated an even more stunning lack of concern over the human and economic devastation that has already been linked to climate warming trends – much less the increase in catastrophic weather events if carbon dioxide levels reach 600 or even 650 parts per million. (We’re now at 400 ppm, up from 350 ppm just 28 years ago). Instead, he indicated strong faith in the technologies that will be needed to adapt to rising sea levels and coastal inundation and acknowledged a certain degree of suffering noting: “mankind has this enormous capacity to deal with adversity.” Yet, his faith in technology was not nearly as strong with respect to key mitigation strategies such as renewable energy and low-carbon transportation fuels.
When asked about Exxon’s willingness to invest in renewable energy, Tillerson quipped, “[W]e choose not to lose money on purpose,” and went on to claim that renewable energy would not exist without massive government subsidies. This is especially ironic in the wake of a new IMF report on the trillions in subsidies that the oil and gas industry is receiving each year – including $699 billion in the U.S. alone; that’s more than $2,000 for every American.
Exxon and Chevron also announced that they will not join with the six European oil majors who have committed to go to upcoming UN climate talks in Paris with a proposal for addressing climate change – specifically, by asking world leaders to set a price on carbon pollution.
Chevron and Exxon are increasingly digging in their heels and relying on myopic business models that are simply no longer realistic. This year, engaged shareholders have reason to redouble their efforts to reach board members and decision-makers within these two remnants of the original oil behemoth — Standard Oil — and convince them that its time for a new path forward.