Energy

The Proxy War Of Climate, BlackRock, And Oil & Gas


Climate advocates have expanded their targets beyond university endowments and pension funds to take on retail investment managers and their holdings in oil and gas producers. These passive-aggressive tactics generate headlines, but any victories are Pyrrhic.

They are using the wrong tools against the wrong target.

In a recent  example, Ovintiv shareholders voted in favor of a shareholder proposal backed by the investment management firm BlackRock, calling on Ovintiv to develop and disclose a company plan to meet targets set by the Paris Agreement.  Ovintiv, the former Canadian company Encana, produces natural gas and oil.  Company management, like that at other producers, has embraced sustainability practices, and it is not a surprise that current shareholders voted in favor of the proposal.

The vote won’t be a significant burden for Ovintiv,  but the conceit of requiring a relatively insignificant oil and gas producer to comply with the Paris Agreement is misplaced.

How did BlackRock get dragged into the fight? BlackRock itself fought but lost against a splinter shareholder proposal from As You Sow, which describes itself as “the nation’s non-profit leader in shareholder advocacy,” the investment community’s equivalent of a PAC.  But the firm  then agreed to follow the demands of its faith-based investors, Boston Trust Walden and Mercy Investment Services, who had demanded that BlackRock vote in accordance with their own climate statements, presumably under the threat of withdrawing their small investment. 

In turn, BlackRock has assumed the role of the loud, pious but insignificant shareholder it disdains. The BlackRock Investment Stewardship Group released its voting decision in favor of the shareholder proposal on the day of Ovintiv’s annual meeting, in accordance with BlackRock policy to disclose votes on behalf of its investors. 

Ordinarily, when investors disagree with the management of a company, they sell the stock they hold in the company. 

These climate activists are attempting to win via theater, aiming for headline-grabbing action and smokescreens. That’s the wrong war.

Shareholder climate proposals for oil and gas companies are not an effective way to achieve their proponent’s goals.

Shareholder climate proposals generally intend to spur company management to reduce greenhouse gas emissions. There is no intended irony in asking oil and gas companies to reduce emissions, but it’s a more complicated issue than it might seem. Oil and gas producers are responsible for pushing coal into retirement. The more coal that is replaced by inexpensive natural gas, the more total carbon emissions are reduced but carbon emissions from natural gas increase. The gain is because natural gas produces just 54% of the carbon dioxide produced by an equivalent amount of coal. To the extent that natural gas has supplanted heating oil in the Northeastern U.S. and other legacy markets, emissions there have dropped, too – natural gas produces only 73% of the carbon dioxide produced by heating oil.

Renewable energy is thriving but cannot quickly displace natural gas domestically or abroad. The dynamic at work is that consumers already are changing to lower-emission fuels, and it is the energy consumers, or voters, to whom the advocacy groups should be directing their efforts. There are many more energy consumers than there are producers. 

The Oil and Gas Climate Initiative, OGCI, is a consortium of the global major oil and gas companies coordinating research and investment into lowering their own greenhouse gas emissions and those of their customers. Progress is never as fast it should be.  But led by voters in Europe and public opinion in the U.S., the companies are planning for a low carbon future.

In recent years, the U.S. majors have been proponents of a carbon tax or other uniform carbon pricing mechanism. Such policies have been adopted in Europe and different regions of the U.S. for electricity generation. If the industry is in favor of carbon pricing, then shareholder advocacy groups are preaching to the choir. 

Consumers emit carbon. Technologies already exist for consumers to capture carbon or use less carbon- intensive fuels, but few buy them because of the added cash cost. This gives rise to the free-rider problem, when one consumer absorbs a cost that fellow competitors do not.  Collective action on behalf of society is appropriate.  

The Waxman-Markey Bill, the American Clean Energy and Security Act of 2009, called for the implementation of a cap-and-trade program in the U.S. The bill would have imposed a cost on carbon emissions and provided a certain path forward for producers and consumers.  It was approved narrowly by the House but not taken up by the  Senate in a political environment that had never been more favorable and improves daily.

The Yale Program on Climate Change Communications has tracked that for more than 10 years, finding that an overwhelming majority of voters, both Republicans and Democrats, support political action to reduce emissions. Top-down political integrity and leadership is required. That is where the advocacy monies should be spent.

Climate advocates already have the employees and shareholders of oil and gas companies as allies. Guerrilla warfare against an industry that already wants positive action is just stupid. The battle is at the ballot box and not annual meetings. It will be more effective for climate advocates to buy the votes of Congress, not money managers or corporations. BlackRock should agree.



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