11/06/2014 02:33 pm ET Updated Dec 06, 2017

Fossil Fuel Companies Must Evolve or Perish

By Mindy Lubber, president, Ceres


We talk a lot in this country about what it takes to enact change -- from politics to finance and education systems. Time and again, we've seen that regular people have the power to drive reform, and that there is strength in numbers.

By this measure, we already have the power to tackle climate change -- which is the biggest social, environmental and economic issue facing us today. In September 400,000 people marched in New York and around the world, calling for climate action. Their demands were echoed by major corporations and by global investors alike as they called on governments to reach an ambitious climate deal, including meaningful carbon pricing.

So what's standing in our way? It's quite obvious: the fossil fuel industry. It is the last remaining holdout as the world continues on its inevitable transition to low-carbon. Fossil fuel companies -- much like your stubborn, elderly relative that refuses to change his eating habits despite the doctor's warnings of a heart attack -- have a choice to make. They can either begin to pivot out of high-cost, high-polluting projects to the clean energy sources that will fuel our future, or they can wait until it's too late.

We've seen it before. Eastman Kodak, a venerable photography company for much of the 20th century, was rendered obsolete by digital. The same for movie rental stores like Blockbuster.

The warning signs for the fossil fuel industry couldn't be clearer. Its financial standing is substantially weaker than it was a decade ago, when high oil prices guaranteed high profits. Companies are seeing weaker profits as oil prices fall below $80 a barrel. Take Shell, whose profits are lower today than they were in 2009, despite a $40 jump in the price per barrel of oil.

The fact is that global temperature increases of any more than two degrees Celsius will put our global economy in jeopardy, and we're currently on a path to significantly exceed this threshold. In order to protect our way of life, the world must invest an additional trillion dollars per year into clean energy. Yet, the fossil fuel industry is still spending more than half a trillion dollars a year to develop reserves that will likely need to remain in the ground.

Ceres is working to change "business as usual" for the fossil fuel industry by mobilizing the very investors that own these companies. Working closely with the Carbon Tracker Initiative (CTI), Ceres has organized 75 institutional investors to voice their concern that fossil fuel companies are underestimating the financial risks they face as the global economy transitions to a lower-carbon future. We're especially focused on curbing massive, long-term investments in expensive, risky projects, such as ultra-deepwater oil drilling and Canadian oil sands.


As part of the Carbon Asset Risk Initiative, coordinated by Ceres and CTI, these investors managing $3.5 trillion are engaging with 45 of the world's top fossil fuel companies. The good news is that their concerns are being heard and are beginning to influence fossil fuel companies' strategies. Some companies are now using "shadow" carbon prices to screen projects, and some of the highest-cost, most carbon-intensive projects, including several in the Canadian oil sands region, have even been cancelled in just the past few months.

Yet, despite these small but important wins, the industry for the most part is forging ahead with their outdated thinking. Exxon and Shell publicly responded to investors' concerns by predicting that declining oil demand from a low-carbon economy is unlikely until at least 2030. We know that this argument is flawed, and we must keep the pressure on fossil fuel companies to use valuable shareholder capital more wisely.

Fossil fuel companies need to evolve. This transition will look different for each company, and will not happen overnight -- yet it is clear that business models will need to be revised to reflect a future that is less dependent on carbon-intensive energy.

Between October 27 and December 5, Ceres is participating in the Skoll Social Entrepreneurs Challenge on CrowdRise.