As governmental and societal pressure to create a more sustainable future intensifies, energy companies around the globe vary in their approach to address the push towards “Net Zero” carbon emissions. Two recent stories illustrate the burden that is being placed on traditional fossil fuel-focused companies: Last week, a Dutch court found that Royal Dutch Shell was partially responsible for climate change and ordered them to reduce carbon emissions by 45% (from 2019 levels) by 2030. In the US, ExxonMobil faced a challenge from activist investor group Engine No. 1, who eventually snagged three seats on the Exxon board for members whom the fund believes will actively push to accelerate the company’s de-carbonization efforts.
The energy transition is not an existential threat to the energy business, but it is an existential threat to many energy companies. As exemplified by Shell and Exxon, companies around the world have to acknowledge increasing investor support for sustainability initiatives. Recent studies emphasize that firms’ responses to the energy transition are not identical. Size matters, as does location – especially Europe versus the U.S. Further, there is a dichotomy between those companies taking a long-term approach and those focusing on short-term actions. The majors are leading the way by pursuing a variety of energy diversification strategies, while other companies are focusing on reducing their emissions intensity. Investments in renewables are hot, and divesting more carbon-intensive assets is also becoming popular. Although the path ahead is unclear, almost everybody is doing something. Paying attention to carbon intensity, as well as other ESG matters, will be an essential competency for energy companies going forward.
