The results of recent shareholder votes and a court ruling signal the growing threat of climate-related actions to energy companies, says Moody’s Investors Service in a new report.
The rating agency said that the outcome of shareholder votes at oil giants such as ExxonMobil and Chevron, along with a court decision against Royal Dutch Shell, highlight the increasing credit risk facing major oil producers over concerns about climate change.
On May 26, ExxonMobil’s shareholders elected two climate-activist candidates to the company’s board of directors, and a majority of Chevron shareholders voted for the company to limit emissions.
At the same time, a Dutch court ruled that Shell must increase planned cuts of greenhouse gas emissions (Moody’s said the company is expected to appeal).
“These actions represent a substantial shift in the landscape for oil companies, which had previously prevailed in courts, and largely fend off significant shareholder votes, on climate related matters,” the report said.
Moody’s said that it views the outcome of the ExxonMobil shareholder vote as the most important of the three developments, as “the outcome is binding, cannot be appealed, and likely presages similar results in future board elections at other U.S. oil companies.”
Several investing giants, including BlackRock and the three largest U.S. pension funds, reportedly backed the activist candidates, “signifying the pressure large investors also face to decarbonize their holdings,” Moody’s said.
At the same time, the rating agency reported that 61% of Chevron’s shareholders voted for a resolution calling on the company to cut emissions.
“Although the resolution is non-binding and does not specify targets or deadlines, the large-scale support for it further demonstrates growing investor demand for oil companies to take bigger and quicker actions to address climate change,” Moody’s said.
For its part, the court ruling against Shell stems from a lawsuit brought by climate activist groups calling for the company to cut its emissions more sharply than planned. That ruling could weaken oil company credit quality significantly, Moody’s said.
“While Shell has targeted net-zero greenhouse gas emissions by 2050, the decision points to increasing pressure from a variety of stakeholders for the oil sector to more aggressively pursue decarbonization and increase investment in renewables,” it said.
Taken together, the shareholder votes and the legal decision highlight the growing momentum facing the energy sector.
“The ruling amplifies our sense that the industry will have to decarbonize substantially more quickly than companies are currently planning, through a combination of policy measures, litigation, investor pressure, accelerated technological advances in renewable energy and changing consumer preferences,” Moody’s said.