Trends In Energy: Mid-Year Update Part 2

At the start of 2020, Delve analysts identified the top six trends in energy infrastructure to watch over the year. While 2020 has brought unexpected challenges, we are looking back, now more than halfway through the year, on how some of our predictions have changed and how they still ring true in this “new normal.” In July, Part 1 of this mid-year update explored how COVID-19 has impacted the first three trends we identified for the year. This update examines the remaining trends, including how regulatory pressures have continued their shift to state and local levels, the mainstreaming of next generation, more disruptive energy activism, and the growing pressure facing financial institutions from both ends of the political spectrum.

4. Whether Democrats Take The White House Back Or Not, Policy And Regulatory Pressures Have Shifted To State And Local Officials – And The Courts.

With now over three years of the Trump Administration cutting regulatory red tape, state and local officials have taken up the environmental mantle to advance the climate issue on their own. Following efforts by the Sierra Club, by the end of 2019, seven states, plus D.C., and Puerto Rico had made commitments to 100% renewable energy on aggressive timelines. This year, states have continued that trend. In April, Virginia added its name to the list when Governor Northam launched Clean Energy Virginia, which includes requiring all carbon emitting sources of electricity in the state to be out of service by 2045. Lawmakers in Massachusetts could soon decide to add the commonwealth to the list as well, as they face mounting pressure from activist groups to pass an aggressive 100% renewable plan that would require all of the commonwealth’s electricity to be renewable by 2035 and all heating and transportation energy to be renewable by 2045.

City governments are joining these governors in taking aggressive climate actions. The Sierra Club’s “Ready for 100” pledge closed out its commitment drive with the support of 226 mayors from across the United States, and more than 400 mayors have joined the bi-partisan Climate Mayors, a network that is “working together to demonstrate leadership on climate change. Earlier this year, Miami and Phoenix added their names to a list of U.S. cities in C40 Cities, a global group of cities committed to achieving the goals of the Paris Climate Agreement, bringing the total count of U.S. cities in the group to 14.

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State Attorneys General are also taking up the climate fight. Since the onset of the Trump Administration, AGs in a number of states have fought the Administration’s regulatory rollbacks, and the AGs from Washington, D.C. and Minnesota recently have reinvigorated the effort to take energy producers and production to court for “covering up climate change for decades.” The two AGs filed lawsuits against Exxon Mobil, Shell, BP, Chevron, and Koch Industries. In June, Massachusetts Attorney General Maura Healey furthered another line of attack on fossil fuels, petitioning the state Department of Public Utilities to investigate the future of natural gas in the state and to “work with stakeholders to develop a nation-leading regulatory and policy roadmap that protects customers during the necessary transition away from reliance on natural gas and other fossil fuels.” This move comes on the heels of Brookline, MA banning new natural gas hook ups last fall, with several other Bay State municipalities awaiting this guidance requested by Healey before moving forward with similar bans. Activist AGs have also seized on the COVID-19 pandemic as a means to push their environmental agenda. In May, 11 attorneys general called on FERC to “impose immediate moratorium on approving fossil-fuel projects until coronavirus crisis is over.”

To help aid in these various legal fights, former New York City Mayor, Michael Bloomberg, has directed funding toward the State Energy & Environmental Impact Center at the NYU School of Law to provide legal support to state attorneys general in “defending and promoting clean energy, climate and environmental laws and policies.” If Joe Biden is elected in November, his Administration may very well provide further backing to these legal efforts as well. However, regardless of who sits in the White House in 2021, state and local governments are rapidly picking up issues that have been traditionally handled by federal regulators. The new age of energy activism has already made local policymakers and regulators into standard bearers in the climate fight, and public affairs professionals need to recognize that traditional DC focused lobbying efforts and relationship building are no longer enough to protect their companies’ interests and advance their business objectives.

5. These Local And State Fights Are Being Driven By A Surge Of Next Generation, Disruptive Energy Activists That Heighten The Political And Reputational Risks Facing The Energy Industry This Year And Beyond.

In 2019, we saw a new generation of voices begin to reshape the environmental movement by tapping into young voters’ “existential anxiety,” to engage a more confrontational and disruptive activist. While organizations such as the Natural Resource Defense Center, Sierra Club, and other traditional, established groups remain, these groups are now the moderates in the fight against climate change. In 2020, this trend has continued with the rapid growth and acceptance of next generation environmental activism. Today, Extinction Rebellion, or XR, the radical UK-based climate group has grown to has more than 1,000 groups, from nearly 500 at the beginning of the year. Here in the United States, the Sunrise Movement’s organic and viral climate campaign has engaged and mobilized students and has been instrumental in promoting the Green New Deal and making climate change a critical issue for policymakers through untraditional tactics like a November 2018 sit-in at House Speaker Nancy Pelosi’s office that was joined by freshman Congresswoman Alexandria Ocasio Cortez (D-NY).

Despite the COVID-19 pandemic putting a halt on much of American life through the start of the new year, Sunrise has continued to engage young activists through their Sunrise School which has regular training sessions and connects activists around the country. These new activists have the ability to scale quickly, adapt to whatever their circumstances, and utilize tactics that used to be considered outside the mainstream, pandemic or not. More importantly, however, they are no longer just sitting outside the elected officials’ offices protesting, but being invited into the room with a seat at the table. For example, Democratic Presidential nominee Joe Biden included Varshini Prakash, co-founder of the Sunrise Movement, on his campaign’s climate task force, which is also co-chaired by Rep. Ocasio-Cortez. Beyond the White House, Sunrise is developing an effective political operation down ballot, endorsing “Green New Deal Champions” and getting their supporters to make calls for their preferred candidates. In many cases, they’re winning. In two years, Sunrise has gone from staging protests in Speaker Nancy Pelosi’s office, to helping shape the Democratic Party’s climate platform and helping pick the winners in Democratic primaries. As these next generation activists are able successfully elect more “Green New Deal Champions,” their impact will only grow following the 2020 election.

The increased disruptiveness of these next generation activists has also incorporated a broader set of progressive groups than previously focused on environmental issues. The Democratic Socialists of America, for example, have prioritized environmental justice and “Energy Democracy,” both as a national organization and by a number of their local affiliates. DSA chapters have led efforts to municipalize utilities in Chicago, Massachusetts, Rhode Island, and California, and have taken part in “Energy Democracy” coalitions in traditionally conservative states like Alabama. The group argues such municipalization is necessary to shut down fossil fuels and shift generation to 100% renewables, putting forth a set of guiding principles for what it calls an “Ecosocialist Green New Deal.” These principles include decarbonizing the economy fully by 2030 by nationalizing fossil fuel providers and phasing them out while establishing public ownership of all utilities and the electric grid. Much like the XR and Sunrise, DSA too has grown despite the pandemic, with The Atlantic reporting, “the Democratic Socialists of America have an estimated 10,000 new members … that organizers attribute, in part, to the coronavirus pandemic.” As these groups and their allies further advance into the mainstream of environmentalist efforts, industry public affairs professionals will have to adapt how they protect energy projects from these disruptive efforts to influence policy and regulatory decisions.

6. Financial Institutions Have Responded To Shifting Climate Opinion With Dramatic New Environmental Policies, But These Concessions Have Only Increased Pressure From Across The Political Spectrum.  

Despite Blackrock’s pledge early this year to make “sustainability” the firm’s “new standard for investing,” activists still targeted the firm. Meanwhile, the “Stop the Money Pipeline” campaign that launched in January has targeted specific banks, insurance companies, and asset managers that fund fossil fuel projects. JPMorgan Chase was one of the first targets of this initiative, with demands the bank divest from fossil fuels and calls for customers to close their accounts. In July, Morgan Stanley announced it would become the first major U.S. bank to publicly disclose how much its loans and investments contribute to climate change. The bank was quickly joined in this commitment by Bank of America and Citi.

These broader climate commitments follow announcements earlier this year to stop providing financing for Arctic drilling. Morgan Stanley, UBS, Wells Fargo, and Goldman Sachs all announced they will no longer invest in or support oil projects in the area. These announcements came after a group of Senate Democrats wrote a letter to a group of major financial institutions demanding they stop funding such projects. Following Morgan Stanley’s announcement, the Sierra Club noted Bank of America “is only remaining major us bank without a commitment not to fund arctic drilling.”

Pressure from policymakers goes both ways, however. In response to this shift by financial institutions, a group of Congressional Republicans wrote a letter to President Trump arguing, “Wall Street’s big banks … should not be able to reap the benefits of participating in federally guaranteed loan programs laid out in the CARES Act … while simultaneously targeting American energy companies and workers.” In turn. the Trump Administration announced the Treasury Department will “take a serious look at these banks’ actions,” while “The OCC [Office of the Comptroller of the Currency] intends to seek additional information from the banks involved to understand the rationale for these decisions as well as their effect on our national economy and local communities.”

Separately, the Department of Labor took aim at the increasing investor focus on social impact with a regulatory proposal to add specific requirements for fiduciaries considering Environmental, Social, and Governance (ESG) oriented investments. The proposal “reiterates that fiduciaries are prohibited from disregarding pecuniary considerations to instead pursue ESG-related considerations.” This move by Labor was widely seen as a reaction to heightened pressure to place ESG concerns at the forefront of investing. The move comes as a “group of large investors,” including “more than three dozen pension plans, fund managers and other financial institutions,” called on regulators to “explicitly integrate climate change across your mandate.” In addition, a group of activists, including Amazon Watch, Greenpeace USA, League of Conservation Voters, Natural Resources Defense Council, and Oxfam, wrote a letter to Federal Reserve Chairman Jerome Powell and New York Fed  President John Williams urging the Fed to end its purchases of energy sector corporate bonds. The letter claims, “Through these purchases, the [Federal Reserve] Board is potentially exposing the public to financial losses through credit risk, market risk, and operational risk due to exacerbation of the climate crisis.”

Shareholder activism focused on climate risk has increased this year, with shareholder activist group As You Sow forcing votes by shareholders in several major oil firms on proposals to disclose climate change risks to petrochemical facilities. In May, a majority of Phillips 66 investors supported the proposal, but investors for both Chevron and Exxon Mobil rejected the proposals. While Chevron’s shareholders rejected the climate risk proposal, they did approve a proposal that requires additional climate-related lobbying disclosures, include “a [Board of Directors report within the next year describing how the company’s lobbying activities ‘align with the goal of limiting average global warming’ to a level prescribed by the Paris climate accord.”

The successful proposal won praise from sustainability group Ceres, which claimed the move “puts Chevron, and companies everywhere, on notice that investors view lobbying as a critical part of a company’s core climate strategy.” Indeed, the proposal is just one recent example of the increasing scrutiny by activists on how consistent companies’ lobbying and public affairs efforts are with the climate commitments they make. With the abundance of public information now available to hold firms accountable, press releases are no longer enough to satisfy activists, and companies will have to be deliberate and thoughtful on how their business objectives align with the principles and promises they adopt under activist pressure.