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5.26.21 – The Day The World Changed Thumbnail

5.26.21 – The Day The World Changed

Reports

Dear Valued Client,

It’s not game over. That’s when a buzzer-beater basketball launched from midcourt swishes through the hoop to end the game, or a Hail-Mary pass is caught just as the clock expires. This was more like an interception returned for a touchdown to bring the game within three points. But as the defense trots back on the field, you see determination in their eyes. May 26, 2021, will be recorded as the day momentum shifted. But this isn’t some Friday night high school tussle. It’s the Super Bowl for life as we know it.

It began with a court ruling in the Netherlands holding that Shell Oil must cut its carbon emissions 45 percent by 2030; not just the fossil energy it burns (scope one emissions), but also the emissions that result from the use of oil and gas by its customers (scope two and three emissions). The activists from Milieudefensie, the Dutch Friends of the Earth group, literally leapt for joy.

Oil’s bad day worsened when Chevron shareholders voted in favor of a resolution calling on that company to “substantially reduce” its scope three emissions. The trifecta hit when Exxon Mobil shareholders voted for a resolution sponsored by a climate activist hedge fund called Engine 1, putting two of its nominees on Exxon’s Board of Directors. Engine 1 has been pushing Exxon to accelerate its transition to clean energy since 2020, saying that the company’s focus on fossil fuels was creating an “existential risk.”1

The Financial Times called it Oil’s Black Wednesday.2

In truth, the game started to shift a week earlier when the International Energy Agency released a report3 stating that oil and gas companies must stop all new exploration starting now to have any hope of limiting the damage from climate change. In addition, the report called for massive new investment in clean energy technologies.

2020 was an exceptionally bad year for the fossil fuel industry. Oil majors had written off $80 billion in stranded assets. BP swallowed $18 billion, Shell $20 billion, while Exxon wrote down $24 billion. This is all part of the stranded asset carbon bubble predicted in 2018 by Carbon Tracker4, which now estimates 2020 as the year of peak fossil. Yes, oil prices will spike as vulnerabilities in the global supply5 chain are exploited, but the long-term trend is clear6.

In evolution, failures are fossils. In economics, companies that miss evolutionary opportunities become Blockbuster in a Netflix world. In what Bloomberg called a “symbolic energy shift, in 2019, Tesla exceeded the market capitalization of Exxon7. Once the most valuable company in the world, Exxon now has a lower market capitalization than NextEra8, a mostly renewable energy developer.

The social movement to preserve Earth’s climate as we know it has proved to be formidable when supported by the growing pool of investors who wish their money to work in service to life, not in opposition to it. In 2019, young Greta Thunberg courageously crossed the North Atlantic in hurricane season on a sailboat because she refused to fly. The sixteen-year-old then led hundreds of thousands of marchers in New York City (8 million marchers globally) to call for climate protection. Meanwhile, investors have embraced their collective power to influence the largest corporations on the planet. Globally, sustainability-focused assets under management have increased to $37.8 trillion at the end of 2020. The Deloitte Center for Financial Services predicts9 that half of all professionally managed assets in the US will have an ESG-mandate in just four and a half years. The message is clear. Profits that come at the expense of the natural world and the people that live within it are no longer tenable.

I have been fortunate to work with passionate individuals who care deeply about honoring and protecting this pale blue dot we call home. We have long felt like the underdogs, destined to lose to the biggest industry in the world. When the history of this battle is written, May 26 will be recognized as the day the world changed.

L. Hunter LovinsChief Impact Officer Change Finance, PBC

Disclosures, Definitions, and Footnotes

  1. Brower, Derek. 2021. “Exxon Mobil shareholders hand board seats to activist nominees.” Financial Times. https://www.ft.com/content/da6dec6a-6c58-427f-a012-9c1efb71fddf?emailId=60aeb99b4ab84000040e7fd1&segmentId=7e94968a-a618-c46d-4d8b-6e2655e68320
  2. Financial Times. 2021 “A turning point for Big Oil.”https://www.ft.com/content/67ad6163-da6b-4671-95a5-fe85a307d9d0
  3. Worland, Justin. 2021. “‘A Narrow Pathway’: How a New Climate Report Rocked the Energy World.” Time. https://time.com/6049584/climate-change-iea-report/
  4. Carbon Tracker. 2018. “2020 Vision: why you should see the fossil fuel peak coming.” https://carbontracker.org/reports/2020-vision-why-you-should-see-the-fossil-fuel-peak-coming/
  5. Cho, Sharon. 2021. “Rebel attack on world’s largest crude terminal sends oil prices surging.” World Oil. https://www.worldoil.com/news/2021/3/8/rebel-attack-on-world-s-largest-crude-terminal-sends-oil-prices-surging
  6. Carbon Tracker. 2018. “2020 Vision: why you should see the fossil fuel peak coming.” https://carbontracker.org/reports/2020-vision-why-you-should-see-the-fossil-fuel-peak-coming/
  7. Wethe, David. 2020. “Tesla Overtakes Exxon’s Market Value in Symbolic Energy Shift.” Bloomberg. https://www.bloomberg.com/news/articles/2020-06-30/tesla-overtakes-exxon-s-market-value-in-symbolic-energy-shift
  8. Wade, Will and Eckhouse, Brian. 2020. “NextEra Now More Valuable Than Exxon as Clean Power Eclipses Oil.” Bloomberg. https://www.bloomberg.com/news/articles/2020-10-07/nextera-now-more-valuable-than-exxon-as-clean-energy-unseats-oil
  9. Collins, Sean and Sullivan, Kristen B. “Advancing environmental, social, and governance investing” Deloitte Center for Financial Services. https://www2.deloitte.com/content/dam/insights/us/articles/5073_Advancing-ESG-investing/DI_Advancing-ESG-investing_UK.pdf