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Big Oil Loses Big – And That’s Good for Investors

Last week, environmentalists won three key victories over Big Oil across the world. Not only is that a great step for the environment, but it's good for investors too. Here's why.

Oil drill mining
Above: oil drill mining. As the world moves away from oil and gas and towards clean energy sources, the oil giants must adapt to the changing world. IMG credit: Zbynek Burival/Unsplash

In the Netherlands, courts ruled that Royal Dutch Shell has to cut emissions faster. Chevron shareholders demanded less oil sales. And the biggest news was that ExxonMobil shareholders elected two new environmentally-conscious directors on the board.


However, all of these rulings have positive benefits for investors. Exxon has had a low rate of returns for its shares over the past decade, indicating a stagnating rate of growth. Carleton English explains that this low return is mainly due to poor allocation of funds and dividends. In short, these companies are not preparing themselves for the transition to renewable energy that is coming, and that would be harmful to investors.


That's why when these corporations are forced to think more about climate change and emissions standards, it will actually help them in the long run – and then that in turn will help investors.


The Details

A Netherlands court ruled that the emissions from Royal Dutch Shell "pose a very serious threat" to Dutch citizens. They ordered the company to cut emissions by 45% by 2030, versus their original 20% pledge. Though Shell is appealing to the Supreme Court of the Netherlands, the ruling marks a landmark shift in thinking in political, judicial, and public opinion.


Next, almost 61% of Chevron shareholders approved a measure which demands Chevron work on cutting "Scope 3" emissions, which are emissions that occur as an indirect result of their actions, particularly the actual combustion of fossil fuels. However, this proposal was unfortunately vague, failing to take any actionable steps towards achieving this goal.


Finally, here's the story of ExxonMobil. A new activist hedge fund called Engine No. 1 won at least two board seats (there could be more, as votes are still being counted). Engine No. 1 explains that Exxon "has failed to evolve with the industry’s transition, resulting in significant underperformance to the detriment of shareholders. The energy industry and the world are changing."


Sources

Domonoske, Camila. “The Week That Shook Big Oil.” NPR, May 28, 2021. https://www.npr.org/2021/05/28/1000882311/big-oil-faces-a-reckoning-decades-in-the-making.


Domonoske, Camila. “A Tiny Fund Has Scored A Historic Win Against ExxonMobil Over The Future Of Oil.” NPR, May 26, 2021. https://www.npr.org/2021/05/26/1000448553/tiny-fund-scores-historic-win-in-battle-against-exxonmobil-over-future-of-oil.


English, Carleton. “Big Oil Had a Bad Week. Why That's Good News for Investors.” Big Oil's Bad Week Is Good News for Investors. Barrons, May 29, 2021. https://www.barrons.com/articles/big-oil-bad-week-51622241976.


Rapier, Robert. “Big Oil's Bad Week.” Forbes. Forbes Magazine, May 30, 2021. https://www.forbes.com/sites/rrapier/2021/05/30/big-oils-bad-week/?sh=662b8a1c7569.

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