July 30, 2021 [Forbes] – Less than a month ago, oil-and-gas titan ExxonMobil XOM +1.2% had a rude shake up, as an activist investor group won an unprecedented three seats on its board of directors.

The win had been fueled by a campaign message that the company needs to get much more serious about shrinking its carbon footprint.

The specter of ExxonMobil, one of the world’s largest oil and gas companies, being pushed around by activist investors feels like a new chapter in the transition to a lower carbon future.

‘Big Oil’ long has been a term to paint the world’s largest oil and gas companies as a monolith. Yet in the last decade, its biggest players – ExxonMobil, Chevron CVX +1.4%, Total, BP and Shell – are actually falling into different camps when it comes to the energy transition, largely on geographical lines.

The U.S.-dominated camp has been led by heavyweights ExxonMobil and Chevron, which have acknowledged the need for a transition but have been slow to commit to net zero carbon emissions by 2050, an overarching goal established by the Paris Agreement.

Exxon, for example, openly acknowledges plans for its continued role in producing fossil fuel for decades to come. The oil-and-gas titan has continued to make fossil fuel investments, while putting some investment dollars in carbon reduction technology, such as carbon capture projects.

Exxon has also invested extensively in biofuels, with a target of 10,000 barrels a day by 2025.

What they have not done is map out a plan to move their business towards other forms of sustainable energy, explaining that their core business is ‘oil and gas.’

Chevron, too, has been hesitant to make longer term emissions reduction commitments, recommending in March 2021 that its shareholders vote against proposals that called for emissions reductions.

“In Chevron and ExxonMobil, you don’t see anything significant,” said Praveen Kumar, director of the Gutierrez Energy Management Institute at the University of Houston. “It is not just that you don’t see the lower emissions commitments. You don’t see any significant investments with respect to the transition, such as moving into sustainable electric power.”

In Europe, however, the biggest companies are taking a more aggressive approach towards asserting their conversion to green. In 2019, Spanish Repsol became the first oil and gas company to make a net zero carbon emissions commitment by 2050. It did so, citing the Paris Agreement commitments as its roadmap.

British BP soon followed suit, unveiling in February 2020 concrete steps to reduce its methane footprint in the short term.

Royal Dutch Shell, in its 2021 announcement of net carbon zero plans by 2050, offered plans to further reduce oil production by moving aggressively into sustainable energy and carbon capture. French Total listed plans for 25 GW of renewable generation by 2025.

Yet the European model is not strictly voluntary – it is being pushed along by societal, regulatory and legal pressure. In December 2019, the European Council endorsed the EU target of climate-neutral by 2050. It has proposed laws to back up the message.

And its courts are following suit.

In May, Shell was ordered by a European Union court to cut its global carbon emissions by 45% by the end of 2030, in a lawsuit brought by environmental groups. The court ruled that the company’s plans were still insufficiently vague to meet its goals.

Meanwhile, efforts to pressure U.S. companies has come through the private sector rather than the government. The lithe and often speculative hedge funds have led the charge.

“Institutional investors, like the big pension funds – Calpers, Vanguard – there were a lot of expectations that these big institutional funds would push the same way as the EU,” Kumar said. “We were hoping that the same pressure would be afoot, but this did not happen. We only started to see shareholder pressure once the hedge funds became aggressive.”

So what has caused the change?

To some extent, the reduced ability of companies like Exxon and Chevron to fight off activist behavior is the result of their reduced power in the market.

“What changed was the shale revolution – it made the supply of oil much more democratic, where most of the supply in the U.S. was no longer under the control of the big oil companies,” Kumar said.

Analysts once thought that when shale oil production slowed down, the larger companies would be able to consolidate their positions through mergers. Instead in 2020, demand dropped dramatically because of the pandemic. Worse yet for these companies, the OPEC producers leveraged their power to further reduce prices, in a struggle for control of the market.

The activist momentum has also been helped in part by the Biden administration. His administration’s climate transition plans include rejoining the Paris Agreement, and emission reductions by at least 50 percent by 2030.

Where does this leave U.S. companies?

Both ExxonMobil and Chevron are recovering from disastrous losses in 2020: ExxonMobil posted a $22 billion loss, while Chevron’s hit was $5.5 billion.

In March 2021, Chevron made a first-time commitment to a net zero carbon path by 2050, though it states that policy and technology continue to be major challenges in reaching these goals.

In May 2021, Exxon also launched a new low carbon business unit.

Its newly reconfigured board is also taking up a study to investigate the impact to its own business of developing a net zero carbon commitment.

Their outlook for 2021 looks brighter however, as gas prices climb, driven by a demand that is moving closer to its pre-Covid level.

At the same time, Exxon and Chevron are looking at what comes next. They have floated the idea of improving their carbon-cutting profile by merging, a possibility that has been discussed behind the scenes with no clear outcome to date.

In April, Chevron announced its first investments in offshore wind, becoming the first U.S. oil major to do so.

Meanwhile, a team approach could also benefit the European model, which still permits companies to improve their profile by playing hot potato with their carbon-intensive assets, rather than investing in making them more environmentally responsible.

The sale of Royal Dutch Shell’s 50% ownership of the Deer Park Refinery this spring is a perfect example of the plan. The refinery’s purchase by Mexico’s state oil company, Petroleos Mexicanos, effectively reduced Shell’s carbon footprint, while increasing that of Mexico’s.

“This allows the board of directors and the CEOs to report back that they have reducing their carbon footprint as a result of these sales,” said Ed Hirs, an energy economics lecturer and energy fellow at the University of Houston.

Yet as the companies jockey for position around the transition table, it is important to remember that as oil prices rise, this enthusiasm may well die down. The next step globally may well be a more unified plan with incentives provided, such as a carbon tax, to make it financially meaningful for companies to do their part.

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