This Oil Giant is Banking on Biofuel to Pacify Climate Critics

The Russian invasion of Ukraine has already sent fossil energy prices soaring. Against this backdrop, Chevron’s $3.15 billion acquisition of a leading biofuel company may appear as a hedge against price spikes as well as a decarbonization step. However, the deal has come a day late and many dollars short. Activist shareholders have just filed papers to request the removal of two members from the company’s board of directors, including the chairman, for failing to take meaningful action on climate change.

A $3 billion biofuel move

Compared to other legacy oil and gas firms like Shell and BP, Chevron has fallen far behind on decarbonization. According to an analysis by the Climate Accountability Institute, the company was one of the top three corporate greenhouse gas emitters in the world in 2019, second only to Saudi Aramco.

Chevron has a lot of catching up to do, but its new focus on biofuel may cause more problems than it solves.

Biofuel does have a place in the global energy transition, but its advocates need to account for the potential of land use conflicts to undermine the global food supply. That issue has intensified in recent years alongside an increase in floods, droughts, and other impacts related to climate change.

To the extent that Ukraine produces biofuel crops, Russia’s murderous rampage through that nation also underscores how human conflict can take arable land out of cultivation. In addition, biofuel farming can give rise to changes in land use patterns that risk exacerbating greenhouse gas emission while resulting in biodiversity and habitat loss.

Nevertheless, on late February Chevron announced its intention acquire $3.15 billion in the outstanding shares of Renewable Energy Group, which operates 11 biorefineries in the U.S. and Europe.

“The transaction is expected to accelerate progress toward Chevron’s goal to grow renewable fuels production capacity to 100,000 barrels per day by 2030 and brings additional feedstock supplies and pre-treatment facilities,” Chevron explained.

In a press release dated March 1, Chevron also described a new decarbonization plan that leans heavily on “renewable fuels, hydrogen, carbon capture and offsets.”

If that means green hydrogen -- not hydrogen sourced from natural gas or coal -- Chevron’s plan could indirectly help accelerate wind and solar development. Aside from that, the company’s focus on biofuel, carbon capture and carbon offsets appears ineffectual and far out of date. Leading energy consumers are already moving away from carbon offsets, and the low cost of wind and solar is undercutting the value of large scale carbon capture projects.

Activist shareholders make their move

Chevron expects the agreement with REG to be finalized later this year. In the meantime, though, it’s little wonder that activist shareholders on the board are not satisfied.

On March 8, the activist shareholder group Majority Action released its 2022 Proxy Voting Guide, designed to help institutional investors assess the climate action plans of leading companies in the areas of electricity generation, oil and gas, auto, banking, insurance and deforestation.

The guide flags 27 companies for shareholder action, with a particular focus on Chevron.

“Investors must move beyond disclosure and company-specific climate risk management frameworks, and focus on holding accountable the board directors of a relatively small number of large companies whose actions are a significant driver of climate change,” said Eli Kasargod-Staub, Executive Director of Majority Action.

The board-centered approach has proven to be effective. Majority Action cites its role in having Lee Raymond, “the chief architect of ExxonMobil’s climate denial strategy,” removed as leader of the JPMorgan Chase board of directors. The organization also notes that investors voted in a slate of dissident directors on the ExxonMobil board, “amid concerns about the company’s climate laggard status.”

Activist shareholders shine spotlight on Chevron

As for Chevron, the company’s out-of-date climate plan is just one indication that a more holistic overhaul of corporate culture is needed. In recent years Chevron has become notorious for paying lip service to modern standards of corporate social responsibility while acting more like a company out of the “robber baron” mold of the 19th and early 20th centuries, including its long battle to avoid financial responsibility for environmental damage in Ecuador.

In addition to releasing the Proxy Voting Guide, on March 8 Majority Action also filed an exempt solicitation against two key members of Chevron leadership, Lead Director Ronald Sugar and Chair and CEO Michael Wirth. Majority Action cited their “failure to adequately respond to successive majority vote shareholder resolutions on greenhouse gas reductions and climate lobbying.”

“The company’s targets, investment plans, and policy influence continue to be demonstrably out of alignment with shareholder demands,” Majority action added.

Majority Action also emphasized that 61 percent of Chevron shareholders voted for substantial action on climate change last year, including action on Scope 3 emissions related to Chevron products, under a proposal put forth by the shareholder group Follow This.

In contrast, Follow This founder Mark van Baal has described the new Chevron plan as “disappointing tokenism” leading to a greenhouse gas cut of just 5 percent by 2028.

The larger problem: Russia

The Chevron brand has already been sullied, and so far, its response to Russia’s unprovoked attack on Ukraine has been less than stellar.

Scores of the best known brands in the world have responded to the catastrophe by dropping their operations in Russia or halting sales of their products in Russia, or by lending technical assistance to Ukraine. That includes BP, Shell and other leading global energy companies.

Chevron, though, appears to be stuck. The company has made it clear that it does not produce or explore for oil and gas in Russia, but the company does license a number of Scope 3 products for use by other oil and gas stakeholders in Russia. It may be difficult for the company to disentangle itself from those contracts. As of this writing, the company has not announced any plans to halt sales of its products, licensed or not, in Russia.

In addition, Chevron notes that it is a 15 percent shareholder in the Caspian Pipeline Consortium (CPC). Chevron relies on the CPC pipeline to export crude oil from its production operations in Kazakhstan.

In addition to transporting crude oil from Kazakhstan, the pipeline is also a significant asset for Russian oil producers. Chevron notes that the pipeline transported a daily average of 200,000 barrels from Russia and 1.1 million barrels from Kazakhstan in 2020.

No word yet on whether or not Chevron can separate itself from the CPC pipeline any time soon.

As the fight for the future ranges from the besieged cities of Ukraine to the boardrooms of global companies, companies like Chevron are falling further out of step with the demands of a world in transition. Something has to give, and shareholder activists are more determined than ever to make change happen.

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