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Table of Contents

Challenging Big Oil From the Inside Out

Episode 5 of The Green Investor Podcast from Investopedia (Feb. 3, 2022)

With oil prices topping seven year highs, the temptation for global oil companies to spend even more on exploration and production is strong. But that might be a $500 billion mistake. At least that’s the theory being proposed by Carbon Tracker, a London-based Think tank. In a new report, Carbon Tracker says oil majors may be left with upwards of $530 billion in stranded assets if governments around the world adhere to climate change initiatives outlined in the Paris Agreement and incentivize more renewable energy projects. That could lead to a steep drop in oil prices towards $40–$50 a barrel, which would trigger those losses. If oil companies devote those same resources into their own renewable projects, their risk is far less, and their opportunities for sustainable growth increase—according to the report.

Following the money, sustainable investing mutual funds and exchange-traded funds (ETFs) continued to attract record flows from investors last year. As of the end of 2021, assets grew 52% from the year before to $362 billion. The money being invested globally in the energy transition to renewable and sustainable sources totaled $755 billion in 2021—that’s a new record, according to Energy Transition Investment Trends, a report by BloombergNEF. Investment rose in almost every sector covered in the report, including renewable energy, energy storage, electrified transport, electrified heat, nuclear, hydrogen, and sustainable materials.

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Meet Mark van Baal

MVB

Mark van Baal is the founder of Follow This, a nonprofit organization that unites activist shareholders in order to combat climate change from within the fossil fuel industry. Follow This is now a major international player pressuring the oil sector, filing resolutions in five different oil majors in Europe and the U.S. Mark previous worked as a journalist covering Energy & Entrepreneurship for several Dutch media outlets.

What's in This Episode?

Standing up to the world's biggest corporations is not for the timid, and it's hard to get them to pay attention, even if you are fearless. But if you really want to affect change among global multinational corporations, going at it from the inside can sometimes prove to be very effective. That's the strategy that Follow This has been using, and it's showing signs of working. The nonprofit organization started in the Netherlands with a campaign aimed at Royal Dutch Shell; it has been filing shareholder resolutions at Big Oil companies around the world because it owns shares in those companies. Furthermore, it allows people to buy shares in big energy companies, and Follow This will use those shares as part of its ammunition to pressure those companies to live up to their environmental promises. Mark van Baal is the founder and CEO of Follow This, and he is our guest on the Green Investor this week. So good to be with you, Mark.

Mark:

"Good to see you. Nice to meet you."

Caleb:

"Well, I gave the broad sketch of what you do, but it's much more complicated than that. If you can, briefly tell us about the organization and the purpose and the process."

Mark:

"Yeah, maybe I should start in 2015, when Follow This was founded. Follow This founded on a few convictions. One of them is that we need Big Oil to speed up the energy transition to have any chance to end the climate crisis. Without Big Oil, there's no chance we're going to meet the Paris Climate Accord. Second, I'm convinced that they want change on their own accord. They've shown in the past that they really want to continue business as usual, so they need to be pushed from the outside. And the only people they really have to listen to are their shareholders. And at the end of the day, that's you and me, via savings or pensions. So the idea was, back in 2015, we need to support Big Oil to make this enormous brave and bold decisions to stop investing in oil and gas."

Caleb:

"You're basically asking them to change their business practices, turn them upside down. This is what they've been doing for decades and decades. And you're calling not only for them to pay attention and respect the agreements in the Paris Accord, but to go even further. So, let's talk about some of the things you're pushing for at Follow This from the Big Oil companies like Royal Dutch Shell, like Exxon, etc. You have some pretty heavy demands."

Caleb:

"I don't think it's very heavy. We consider and more and more investors consider it just a fair ask. And the fair ask is: Join the goal of the Paris Climate Agreement. Set targets to reduce emissions that are aligned with the goals of the Paris Climate Agreement. We all know that's 1.5 degrees, preferably well below two degrees in worst case, and that can only be achieved if global emissions will be halved in the next decade and will be zero in 2050. And everybody has their own share. And so these companies who have the global power also needs to do their own share. And that means halving emissions in the next decade. Sounds very heavy. It's a false transition, I fully agree. But let's face the facts, if Big Oil had wanted slow transition, they should have started in the 90s or even earlier in the 80s or 70s when they knew about climate change. They deliberately chose to postpone action first by climate denial and now by saying, 'Yeah, we can't go this fast. This is not realistic.' But the Paris Climate Agreement is doable. The technologies are there, society's ready, politicians are ready. Only the boards of Big Oil are not ready, and I can fully understand that."

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Caleb:

"So tell us about the process. You're a nonprofit, but you offer the ability to buy shares or transfer shares of these oil companies from individual investors like me. And then you put them to work. Tell us how that works."

Mark:

"The only way to get something like this off the ground, I concluded in the end of 2014, when I approached pension funds and big investors... We have the message, 'OK, guys, I hear you talking about stopping climate change all the time. You're invested in Big Oil. Why don't we together support them, and if needed, force them to change course?' Big investors thought this was too early and they all told me, basically, 'We do engagement. We talk with them behind the scenes, and we don't want to do this in the public scene.' So, I concluded the only way to get this off the ground is via grassroots organization."

"So, in the beginning of 2015, we built a website where you could buy one share in Shell. One symbolic green share in Shell was €30 at that time. You could send an email to the CEO of Shell saying, 'Dear Ben, I'm your new shareholder. You have the power to stop climate change. You have my support to do so. What are you waiting for?' And with that, a few hundred people bought that idea and actually bought that green share. So, in May, I could go to the shareholder meeting of Shell stating on behalf of a few hundred shareholders—of course, I didn't tell that they only had one share a person at the event—'We're here to support you. We know it's very difficult. We know it's very difficult to completely change your business, but you have our support. What are you waiting for?'"

"That was 2015, and the answer was quite simple: 'Thank you for being on the show, the meeting. We're not ready. See you next year. And please come back every year, like all the NGOs, and we will tell you when the time is right.' That was 2050. But because we got media attention because I was standing there on my own on behalf of a few hundred people, I managed to get five people—which I always say have a few millions and a few ideals—they bought each of them €1 million in shares in Shell. And then you pass a threshold to the U.K. And when you have €5 million and 100 shareholders, you can file a shareholder resolution. And that's what we did in the end of 2015. On the shareholder meeting in 2016, a year later, it was actually on the ballot on the agenda of the shareholder meeting. And that was the moment we got serious because then you have the attention of the board because they have to take a decision to advise the shareholders how to vote and the shareholders, the big institutional investors, the big pension fund, they have to decide how they're going to vote."

"So, that was the moment it started. And in the first year, we only got 2.7% of the votes, which sounds very low. But if you compare it to all other resolutions where 99.9% votes with management, if 2.7% disagrees with management, that's already a signal. A year later was 6%, and on 6% Shell already responded with a big step for an oil major, taking responsibility for product emissions, the so-called Scope 3, which I talk about all the time."

Caleb:

"I want to get into that for sure. But every year you're getting more and more votes, right? You're getting more and more attention because this is growing. What have you noticed about investor behavior in the way investors today are thinking about this versus five, 10 years ago?"


Mark:

"Yeah, we got more and more support every year. Despite all the new promises Big Oil makes... Shell comes out with a new target every year, preferably by 2050. 'Then we will be net zero,' whatever they say, but it's in the far future. So, despite all these new promises, more and more investors realize that they don't have to vote in favor of what's in the best interests of the company, necessarily, but what's in the best interest of their entire portfolio. And that's the shift I've seen in the last seven years. In the beginning, investors said, 'We can't vote for your resolution because you put constraints on these companies and our fiduciary duty is to give every company maximum flexibility to maximize profits. And you ask for constraints.' Five years later, investors one by one say, 'This might not be in the best interests of the company in the short term, but it is in the best interests of our entire portfolio to stop climate change, and therefore we we're going to vote for your resolutions because Big Oil has the lead role to play.'"

"So, that's a shift from focus on what's best for the company to focus on what's best for the entire portfolio, which you can translate into what's best for the world economy. And everybody who knows a bit about climate change knows that not only will it be devastating for the well-being of people but also will be devastating for the world economy."

Caleb:

"Right. As we've been talking about on this podcast, there is so much risk underlying the global energy market that it's not obviously just the wells in the ground and the infrastructure out in the Gulf of Mexico and up in the Arctic. It is the entire energy infrastructure that goes all the way to the retail level. Let's talk a little bit about that because you mentioned that Shell says it adopts new targets. Exxon, which you're involved with as well, adopts new targets every year, but the targets that they're basically adopting is capping their emissions from their production. You are talking about a broad scale reduction all the way down the funnel to the end consumer. And I've heard you talk about this like the tobacco companies, they're not worried about the effect necessarily on the consumer. They're talking about cutting the emissions on the production of tobacco. That's just scratching the surface. Tell us more about that."

Mark:

"Yeah, that's the debate we have with every oil major when we start. Their initial response to our resolutions, which ask for short-, medium-, and long-term targets in line with the Paris Climate Agreement covering all emissions. In your goal, that's Scope 1; in Scope 2, that's the company's operational emissions; and Scope 3, the product emissions, which for oil majors is 80–90% percent. So, what happens when we, the consumers, use their products? And in the beginning, they were dead against setting targets for Scope 3. Their response was, 'That's not our responsibility. We just supply what the market asks us. We're not responsible for what our customers do with our products.'"

"So many investors even said to me, 'Mark, you're asking something unreasonable. Shell doesn't know what our customers do with their products.' That's the moment I lost my patience, as you can imagine. Normally, I'm quite decent. But then I said, 'I think they burn it. What do you think?' That was the first debate, and after a small group of shareholders said, by voting for our resolution, 'Yes, you need to take responsibility for Scope 3. You need to offer different products which drive down emissions.' Then they started setting Scope 3 targets for 2050. Very easy, of course, but it's also crossing the Rubicon. It's accepting responsibility for Scope 3. So that's, I think, what we achieved together with the investors who voted for resolutions in the first couple of years."

"So, Shell, two years later, BP and Equinor, and last year, Chevron and Phillips 66 in the U.S., they all said, the first time our resolution was felt, 'Scope 3: unreasonable. Not our problem.' Shareholders voted for it in the U.S., even majorities. So, that's how you see how the landscape has changed fast, and Shell, the first time, we got 2.7%. Chevron, the first time, we got 61%."

Caleb:

"This is the big issue, right, Mark? Can Big Oil companies come even reasonably close to the Paris accord demand or Scope 3 without completely imploding from a financial perspective? Or is the risk that, if they don't do that, they're going to implode from a financial perspective? But either way, there's a lot of risk out there in the market underlying which way this goes. So, if they don't change, we have a lot of risk in the global economy, the climate crisis, the climate economy. If they do change, it will hurt their bottom line. It'll hurt their profit margins. It'll hurt the entire ecosystem that they're built on. So, how do they even come reasonably close to doing this without doing too much damage either way?"

Mark:

"Yeah, that's right. They have to accept the Paris Climate Agreement. They have to accept that the world, 200 countries in the world, have agreed to limit global warming to 1.5 degrees, which means that two-thirds of the proven reserves have to stay in the ground, which is quite a simple mathematical calculation. Four hundred gigatons to go, 12,000 on the balance sheets, so two-thirds of it has to stay in the ground."

"And then they have to have a completely different mindset and realize that there is a lot of money in renewables. And that's the difficult thing with the transition is... I'm an engineer, but I think it's not the technology. There are enough smart engineers who can solve the technology. The technology is there and the solar panels are there of wind turbines are there. Electric cars are there now, not thanks to the incumbents, but thanks to a newcomer, Tesla. Everybody's building them now, so the technology is there. Only nobody knows which will be the new business models. And that's what companies have to try."

"So, they're used to taking big risks. And now they should take big risks in trying new business models. And I always make the analogy with Kodak. Kodak had invented digital photography, so the technology was not the problem. They only did not dare to try new business models. They wanted to stick to their old business models. They told to the people who want to work on digital, saying, 'OK, you can only start it when you show the same margins as we make with photo rolls and photo paper, which was around 80% I think, which was quite high. So, if you don't dare to go for new business models, you will never get to do the transition. So, that's the big issue here."

Caleb:

"Right. Well, you mentioned the auto industry, and it took a newcomer, it took Tesla, to upend the industry. But Ford, GM, Volkswagen, Fiat, they're all getting in line. And guess what? They've been some of the best performing stocks over the last year because investors see this. They're transitioning their businesses, they're taking the pain now, but they know and consumers want electric vehicles going forward, so they're moving. But it took it did take an upstart to do it. Let's talk a little bit about the SATIE framework you developed because it's not just about meeting those emission targets or the Paris Accord. You have a five step approach. Tell us briefly about what that is because I think it's pretty clarifying in terms of what you're asking for from from Big Oil."

Mark:

"Yeah, the SATIE framework came about when a friend of mine told me, who is a consultant, 'Mark, you need an acronym.' That's what every consultant does. So, I wrote down, 'What do these oil majors need to do?' And I wrote down first, they need to take responsibility for Scope 3. Then they need to set an ambition for Scope 3. Then they need to set a target which is fully aligned with the Paris Climate Agreement. If they set the targets, they need to do investments to reach the targets. And only if they've done that, then we reached the last letter, the E, their emissions will go down. So, that's the five steps they have to take."

"So, if these oil majors, when we filed the first resolution, we wrote, 'Yes.' So, we put Scope 3 on the ballot. If enough investors support it, the company sets an ambition for Scope 3, which is not Paris-aligned yet, but at least they acknowledged responsibility for Scope 3. So, that's where we are with the oil majors, very active now. They have all set an ambition for Scope 3. 2050 for our future. Not Paris-consistent yet for the next 10 years. So, that's the next step. So, they have to go from the S and the E to the T of targets. But I'm convinced that only one you have very strong targets, then you will shift your investments."

Caleb:

"So, folks, we will link to the Scope 3 agreements so you can check that out as well as Follow This' annual letter that you put out in December. Very clarifying in terms of what you're trying to do. Now let's talk about this from my perspective, or an individual investors perspective. If I want to get involved with this, if I want to buy a share, become involved with your movement, I'm doing it because I want to affect change. I'm not doing this to make money, potentially, even though the stock may go up over time. But tell us how that works from an investor point of view."

Mark:

"Yeah, we have basically two kind of investors. Of course, the institutional investors, who already have packages of shares in Big Oil. So, we try to convince them that we just have a fair ask on the agenda. But we also like to show the world that a lot of retail investors also understand our cause and also understand that we need Big Oil to drive the energy transition. So, we encourage individuals to buy just one symbolic share in an oil major of choice. Shell for €30, BP just €9 euros. And really feel that they are a green shareholder in Big Oil. So, we send them updates, we always address them like, 'You're a green shareholder in Big Oil. And on behalf of you, we go to these shareholder meetings, and we ask on behalf of your green share, and we vote on behalf of you for change. And I notice people like that because a lot of people, like myself in 2014, felt pretty powerless looking at climate change. It's a global problem. Of course, I have solar panels on my roof here. I take the train. I don't eat meat. So, I do what I can do as an individual. But I do not have any illusion that that will make the difference in this huge global problem."

"So, I though, 'OK, I have to ask the right people, the people who can make a difference, and these are the CEOs of these oil majors. And by being a shareholder, you actually own the company and you can influence them. So, it's really empowering for people now. Eight thousand people, predominantly in the Netherlands, who have this green share in Shell. Sometimes they join us on the shareholder meeting. We always go to there with 100 people. But yeah, that's the whole idea, that people feel empowered by being an owner of an oil major, and the oil majors are really the heart of the problem. Fossil fuel industry is responsible for more than 50% of all emissions. And they if they don't change, no chance we can ever meet the Paris Climate Agreement."

Caleb:

"Right. Real quick on your background here. You came at this from a completely different place. From what I read, you were selling refrigerating units to big shipping containers, which also use a lot of energy, require a lot of energy. You were looking at the global supply chain firsthand and selling into it, and you just hit a breaking point. What happened?"

Mark:

"Yeah, what happened is that like many people, when I passed 30, I had a very nice career flying all over Europe, selling these refrigeration machines. But I thought, 'OK, I want to do something with more purpose in the rest of my life,' so I decided to become a journalist. And after seeing An Inconvenient Truth by Al Gore, that was really, for me, the epiphany that I thought, 'OK, I'm an engineer for 12 years now. I'm a mechanical engineer. I design and sell machines that put CO2 in the air and never bothered about it. But now I know the problem. Now I have to do something about it.'"

"So I decided to become an energy and climate journalist, did that for a couple of years, like eight years. And then after eight years, when I concluded that I would never be a very influential journalist, that Big Oil would never listen to me, I thought, 'I have to find another way to influence them.' And then I became an activist shareholder."

Caleb:

"Going at it from the inside. So fascinating. What are your big goals for 2022 on the way out here?" 

Mark:

"2022? Yeah, we have to show the boards of the Big Oil companies where we're active, Shell, BP, Chevron, XL, we have to show them that their shareholders are losing their patience. So, we put the same resolutions on the ballot again. So, investors will vote for it in May. And we need to grow to show that investors are losing their patience, and that they really have to change, and that they really have to set Paris-consistent targets, which means their emissions have to go down. All Big Oil companies who have made some promises all want to grow their emissions in the next decade. So, basically, their story is, 'We have this nice ambition. Net zero in 2050. So, now leave us alone and let us increase our emissions in the next decade to build market share, to build cash flow, to even do this. So, the shareholders are our last hope in the fight against climate change."

Consulting company McKinsey just put out a report with its latest analysis of the costs of achieving net-zero emissions, by 2050. It’s adds up to a staggering $9.2 trillion a year, every year, between now and 2050. That comes to a grand total of $275 trillion worth of investments in energy assets and land-use systems ranging from agriculture to forestry. Global GDP was $84 trillion in 2020, for reference.

Caleb:

"Power to the people. Power to the shareholders. Fascinating model and a fascinating organization you've put together. Mark von Baal, the founder and CEO of Follow This, folks. Follow-this.org. Check out what they're doing. And if you want to get involved, plenty of information on the site, but I do highly recommend you read Mark's letter at the end of December, at the end of 2021. A lot of learning there. Thanks so much for joining the Green Investor, and best wishes on your endeavors." 

Mark:

"My pleasure."

Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
  1. LPL Financial, via Morningstar. "LPL Research’s Sustainable Investing Year in Review."

  2. McKinsey Sustainability. "The Economic Transformation: What Would Change in the Net-Zero Transition."

  3. Federal Reserve Bank of St. Louis. "Gross Domestic Product for World."

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