What is going on?
Another week, another net-zero commitment. The Texas-based giant, Exxon Mobil, announced that it would cut its greenhouse gas emissions from oil and gas operations to net-zero by 2050.
The pledge comes after a series of environmental announcements in recent months. In October last year, the company said it would increase its investments into new technologies focusing on lowering emissions, such as carbon capture storage.
In December, Exxon committed to net-zero emissions working assets in the US Permian Basin, a large sedimentary basin in the southwestern part of the United States, by 2030. Until recently, European energy companies, such as BP and Shell have appeared to embrace the Paris climate goals and net-zero emissions pledges, while their US counterparts, such as Exxon, have resisted the sustainability shift.
Why does Exxon suddenly care?
Exxon’s tone at the top changed as a result of a successful engagement campaign by the company’s shareholders last year. They argued that Exxon’s leadership was not equipped to navigate the company through the shift to a new world, less reliant on carbon.
The campaign was led by a small San Francisco based hedge fund, Engine No.1, which had only a 0.02 per cent stake in Exxon and US$250m in total assets. For comparison, Exxon’s valuation was around US$265 billion at that time, as such, the battle carried in David vs Goliath spirit.
In May 2021, shareholders won the proxy vote battle resulting in Exxon having to replace three (out of twelve) of its Board directors, with the proposed candidates. The victory sent a powerful signal to the market, showing the power of shareholder activism and that environmental concerns can no longer be ignored by boardrooms. Fast forward to today, we can already see the progress Exxon is making under the new leadership.
The positive shift in Exxon’s leadership was seen in the company’s sustainability score, where the Governance part of the ESG score improved by 10.5 per cent* in the past six months. Will the trend continue?
What is the takeaway?
Having major oil and energy companies committing to reducing emissions is crucial in our fight to curb emissions. However, the obvious flaw with Exxon’s pledge is the absence of reference to Scope 3 emissions—indirectly generated emissions from up and down the supply chain.
For energy companies, Scope 3 emissions are a major part of their overall carbon footprint as they are released to the atmosphere by the use of their products—petrol in the car engines, aviation fuel or burning of other fossil fuels. With Exxon only including “operations” in its net-zero pledge, this emission segment is completely omitted.
While we appreciate Exxon is making steps in the right direction, more radical action is needed to achieve a truly net-zero future!