Consider This from NPR - Pressure On The World's Biggest Polluters Is Increasing. But Can It Force Change?

Episode Date: June 2, 2021

The Atlantic hurricane season began Tuesday and another "above average" number of storms is expected. And it's not just hurricanes — overall, scientists are predicting more extreme weather events amplified by climate change this summer.While there's little to do in the short term to change this trajectory, recent actions by a Dutch court, the Biden administration and an activist hedge fund all suggest new pressure on large oil and gas companies could help in the long term. Pressure from these outside forces could signal a shift in how the companies operate.Nell Minow, an Exxon shareholder, explains the direction she wants to see the company move in.In participating regions, you'll also hear a local news segment that will help you make sense of what's going on in your community.Email us at [e-mail] more about sponsor message choices: podcastchoices.com/adchoicesNPR Privacy Policy

Corporate lawsuits don't typically end with people pumping their fists in the air or openly cheering in the hallways. But that's what happened recently at the Hague District Court in the Netherlands. The defendant? The largest company in the country. In fact, one of the largest in the world. Royal Dutch Shell. Yeah, that Shell. the oil and gas company. It had been sued by a group of environmental activists who argued Shell was violating human rights by investing in fossil fuels. And last week, in The Hague, Judge Larissa Alwyn...

The court said Shell must reduce its CO2 emissions by 45% by the year 2030, which was a way bigger reduction on a much faster timeline than Shell had been planning. Here's what the CEO of the company told CNBC about Shell's role when it comes to addressing climate change. There will always be concern and challenge. I think a lot of people would agree with me that we're not moving fast enough as a society to address the challenge of climate change. Of course, Shell plans to appeal the court decision. But the ruling? It's a shift in the way courts have held companies responsible for climate change. And that's why climate activists outside Hague District Court were... It's enormous. It's phenomenal. It's historical.

So enormously clear. Downright emotional. For the first time in history, a judge has ordered a large polluter to reduce its CO2 and reduce its contribution to dangerous climate change. It's phenomenal. This is Donald Poles, director of Friends of the Earth Netherlands. For the first time, I have hope that we will manage to address climate change. I'm happy for myself, for my three kids, for all of the children in the world, for the planet.

Consider this. We're seeing rulings and shareholder decisions that seemed impossible 10 or even 5 years ago. And that's ratcheting up the pressure on some of the world's biggest polluters to rethink their all-in commitment to oil and gas. From NPR, I'm Adi Cornish. It's Wednesday, June 2nd. This message comes from NPR sponsor VMware. With app, cloud, security, and workspace solutions, June 2nd. TalkDesk. TalkDesk offers a better way to do customer experience. With TalkDesk's innovative solution, you can get superior contact centers up and running fast. So if you're customer obsessed, visit TalkDesk.com. An officer pins a 16-year-old to the ground and punches out his teeth. But are

there any consequences for the cop? For the first time, we take you inside the secret investigations that show how police protections in California shield officers from accountability. Listen to On Our Watch, a podcast from NPR and KQED. It's Consider This from NPR. With everything that happened in 2020, you may have forgotten that last year was also filled with devastating and extreme weather events, ones that scientists say climate change made much worse. At the beginning of 2020, before the pandemic hit, parts of Australia were ravaged by a series of massive bushfires. The fire in this region alone has destroyed an area seven times the size of Singapore. Record high temperatures fueling the deadly flames, killing at least 12. The sky

turning a deep red as families seek refuge on boats and beaches prepared to jump into the water. Kangaroos seem fleeing from the smoke. Then in the late summer, the west coast of the U.S. had its most active wildfire season on record. These are already the worst fires ever recorded in a single year. Northern California was shrouded in a dark haze. Smoke blotted out the sun. In the Bay Area, an apocalyptic orange-tinted sky. San Francisco's Golden Gate Bridge barely visible in this picture, taken in the middle of the day. So when it comes to this summer, government officials are already sounding the alarm. Atlantic hurricane season began yesterday, and the federal government says it expects another above-average number of storms. And as for wildfires...

You need to be prepared as if it's going to happen today. Here's Tom Porter, the director of CAL FIRE and state fire chief for California. That state's fire season is now 75 days longer than it used to be. At an outdoor press conference, Porter urged Californians to start clearing brush near their homes and prepare for evacuations. I need not say here in the Bay Area how devastating it is when your hillsides are on fire, some of your communities are on fire, and you're deep in smoke that looks like Armageddon for a week on end. For all the bad news on the climate front, the past week has also brought what looks like a string of wins for environmental groups. Wins that, on their own, will do little to move the needle on warming temperatures in the short term, but could signal a shift in how oil industries operate.

Of course, there was that unprecedented ruling in the Netherlands against Shell. But also yesterday, the Biden administration reversed a decision by former President Trump to open up parts of the Arctic National Wildlife Refuge to oil and gas drilling. Then there was a surprising development last week at ExxonMobil. A small activist hedge fund called Engine No. 1 managed to win three seats on the board of that massive oil company. And they convinced a lot of Exxon's shareholders that the company is on the wrong track by focusing too much on oil and gas. One of those shareholders, Nell Minow, vice chair of Value Edge Advisors, was recently interviewed on NPR's Morning Edition by my colleague, Noelle King. And they started

their conversation by talking about who's behind this upstart activist hedge fund. Who is engine number one? Well, it's just a group of investors. It's people who, and it's small by Wall Street standards. So their investment in ExxonMobil was only about $54 million. And if you compare that to other people who have had big fights with major corporations, people like Carl Icahn, those people I want you to think about Michael Douglas' Gordon Gekko in Wall Street. Those are people who had hundreds of millions of dollars, and they invested, and they went

in and they said greed is good. And in a very, very tiny fraction of cases, sometimes they invested and they went in and they said greed is good. And in a very, very tiny fraction of cases, sometimes they were able to defeat the management-sponsored candidates. But this is the first time that a tiny little fund has been successful. They had 0.002% of the stock. This is the biggest upset since David and Goliath. Okay, so to ask you an obvious question, if they have such a tiny, tiny percentage of the stock, number one, why do they care what ExxonMobil does? And number two, how did they get this done?

Well, number one, they care what ExxonMobil does because they think that by making these changes, they'll make a lot of money on the stock. And that is why they succeeded. They succeeded because they made an absolutely incontrovertible business case. And because ExxonMobil pretty much did everything wrong and engine number one did everything right. ExxonMobil lost a record $25 billion with a B dollars last year. Nevertheless, they keep raising the CEO's pay. That's the kind of thing that makes investors very angry. And more important than having a big block of stock, a Carl Icahn,

Gordon Gekko block of stock, is having angry shareholders. Because somebody will get out front, you can get a lot of support. Why is Exxon losing so much money? Well, because unlike some of their competition, they are not pivoting to more renewable resources. They are just pretending that the world is always going to be the way it always has been. And things have changed. I mean, just last week, President Biden issued a major executive order that is going to put a lot more pressure on fossil fuel companies. If they don't adjust to that, they're going to go the way of buggy whip manufacturers. And so when engine number one votes or pushes to get its people on the board, that's not about being altruistic. That's about saying we are investors,

we want this company to be profitable, and in order to be profitable, it has to change with the times. Exactly right. That is what they did right. And then they put up also very credible candidates, people who had a lot of background in the energy business, and that made it very successful. You know, it's a little bit ironic that one of the groups that decided to vote with Engine No. 1 is the largest investment fund in the world. It's the Norwegian pension fund, which was created by the oil business in Norway. And yet even they thought that ExxonMobil was going in the wrong direction. So what does this actually change for Exxon, if anything? That's what we're waiting to see. We don't expect to see any major changes immediately, but here's how we'll know what the impact has been very quickly. One, will they put

these new directors on the key committees? I want to see them on the audit committee. I want to see them on the nominating committee, which selects new directors. And I want to see them on, most important, the compensation committee. And will they change the compensation so that all of the incentive goals are based on making a change rather than doing what they've done in the past? That's how we'll know how effective they have been. If the company tries to shut them out of the major committees, if they don't make changes in the compensation, then you can expect another proxy contest next year until they get a majority. David and Goliath, which you mentioned, is a great story. But ordinarily, smaller voices do not win. Smaller investors do not win. You've been writing and speaking about corporate

governance for years. How big a deal is this? Do you see a knock-on effect happening or is this a one-off? Oh, this is definitely a monumental shift. They'll be studying this one in business schools for years. How does Exxon feel about all of this? What have they said? What has the company said? Well, let me tell you, in a series of incredibly bad decisions, including spending $35 million to fight engine number one, instead of talking to them and compromising with them, they actually did something also completely crazy and unprecedented. They halted the annual meeting in the middle to try to get people to change their votes. It was too little, too late. So I think, I hope that they understand this is a major wake-up call. And if they don't, believe me, they will be getting another wake-up call very soon.

What are the lessons then here for corporations and for smaller investors? Well, this is really capitalism 101. I always say capitalism is not named after the CEO. Capitalism is named after the people who provide capital. And these are people who manage money for the pension funds, for firefighters, for teachers, for people who work in offices. And they are trying to do what is best so that you can retire sometime in the future and get paid. So if they don't listen to their shareholders, they're going to see a lot more of this. These shareholders, like the California Pension Fund, the Norwegian Pension

Fund, they're enormous. So now's the time to make friends with them before things go wrong. That's Nell Minow, Vice Chair at Value Edge Advisors, talking with Morning Edition's Noelle King. You're listening to Consider This from NPR. I'm Adi Cornish.