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27.11.2024 à 19:48

A handful of investors own big oil: what to do about it

institut_rousseau

🇫🇷 🇬🇧 By Robert I. Bell Professor of Management at Brooklyn College, City University of New York Each of five oil Supermajors- EXXON, Chevron, TotalEnergies, BP, and Shell — is controlled by only 25 institutional investors, holding between 38% and 50% of the stock. They aren’t always the same 25, but there is tremendous overlap, with US firms Blackrock, JP Morgan Chase, and Vanguard always in each ownership cabal.[1] Thus a handful of essentially the same owners effectively control the world’s oil industry. Since the 25, or even a material percentage of them, could easily break top management simply by agreeing among themselves to dump the shares, it is hard to imagine that top management is not focused on them and what they want. What would be a good response to effective control of the oil supermajors by 25 institutional shareholders each? Why is the handful of owners a problem? First, these oil companies exercise enormous political influence, globally. Although this is well documented, a recent event perfectly illustrates it. Donald Trump gathered some two dozen top oil executives for dinner at his Florida estate in April of this year and asked for $1 Billion in Presidential campaign contributions; if elected, he would throw out Biden’s Inflation Reduction Act and other efforts to stop global warming and environmental pollution. Whatever else Trump may or may not know, he does know where the money is, and the political influence it can buy.[2] Second, this ownership structure is, in my opinion, literally preventing the oil majors from transforming into renewable energy companies. Although some of the 25 Fund managers may be right-wing ideologues, most of them probably have more or less only one interest—raking in for “the shareholders,” i.e., their funds, all the money generated by the oil companies not needed to pay their bills or drill more holes to maintain their oil reserves. The oil companies represent a more or less sure source of money; all those cars, trucks, airplanes and ships burning some product extracted from oil, and all those items in the petro-chemical industry, especially plastic, make oil as close to a sure-thing as there is. The oil supermajors guarantee this sure-thing by constant share buybacks to keep up the stock price as best as they can in the face of unstable oil prices, and pay out fat dividends, sometimes special dividends. So very little of the free cash generated by the oil sure-thing goes into renewable energy. Please note, nobody needs to be a crazy ideologue or greedy monster for this to be true; top management simply preserves their jobs by delivering for the shareholders (i.e., the 25) and the shareholders (i.e., the 25) are simply delivering for their investors. In other words, everybody is simply being responsible to somebody else. Third, these financial owners apparently are not focused on saving the world from the immediate crisis of global warming, if we look at the implications of the words of Heather Zichal, Global Head of Sustainability at JPMorgan Chase & Co, one of the 25 controlling shareholders in each of the five Supermajors: “There are a lot of things that we, as a bank, can control, but there are things that we can’t…We’re focused on what we can control—facilitating capital,” she said in a Bloomberg interview during Climate Week in September, 2024 in New York City.[3]  As we have seen, her bank, along with another 24 institutional investors, are facilitating their capital into the controlling stake in oil stocks, and the oil companies are then handing essentially all their free cash flow to these owners, instead of using a material part of it to convert out of oil and into renewable energy. Fourth, the oil Supermajors are in a spectacular position to help save the world from global warming by converting to or materially contributing to renewable energy—they have much of the offshore knowledge and even equipment to create huge fleets of floating wind turbines. One, not a Supermajor, but a big company nonetheless, Equinor, has actually started to do that—regrettably in order to produce more offshore oil![4] So this is either a significant green move for an oil company or very high-end greenwash. Another, also not a Supermajor, Danish Oil and Natural Gas, changed its name to Orsted, and is now the world’s biggest developer of offshore wind farms. Perhaps not incidentally, on October 7, 2024, Equinor announced it was buying nearly 10% of Orsted, but would not seek any management changes or board seats and it supported Orsted’s current strategy.[5] Orsted is majority owned by the Danish government. Equinor is 67% owned by the Norwegian government. The Norwegian government’s revenue from Equinor goes into the Government Pension Fund Global, run by Norge Bank. Their website states, “these deposits account for less than half the value of the fund. Most of it has been earned by investing in equities, fixed income, real estate and renewable energy infrastructure.”[6] The fund helps to finance a very successful, egalitarian social welfare state.[7] That said, the Fund, in addition to its revenue from Norwegian oil and natural gas, owns material percentages of Shell, TotalEnergies, Chevron, and Exxon.[8]  So, although the fund helps to make Norway perhaps the only country in the world to escape “the curse of oil,” it also helps to inflict the curse of global warming on the rest of us, and themselves. What should be done about this? There is so much inertia in the global financial system that any idea of addressing the concentration of ownership, the issue of the 25 itself, however bad it may be, is likely a fantasy. The divestiture movement has addressed this issue of ownership, but as a moral issue, and regrettably without great success. Can it be more successful if it is made a financial one? Maybe the goal should not be to get the investors out of oil, but to get the oil companies themselves out of oil. The stock buyback tax has a Robin Hood effect, but with problems We know from the gilet jaune response to a tax on diesel, that

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