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Big Oil gets clean and the world stays dirty

Public pressure on fossil fuel companies can only do so much.

A pumpjack in the Permian Basin of Texas.Daniel Acker/Bloomberg

A single day in May gave climate activists three reasons to cheer. A Dutch court told Shell to cut carbon emissions by 45 percent, Chevron shareholders called on the company to reduce the environmental impact of its operations, and a climate-focused activist hedge fund won three seats on Exxon Mobil’s board. The tide of public opinion seemed to be turning against Big Oil.

But there’s a danger lurking in each of these developments. While these are notable victories in the fight against climate change, they could create the appearance of progress while emissions continue or even worsen. Courts and investors in public companies may have taken significant steps forward, but the possibility is now greater than ever that the dirtiest and most polluting assets will be hidden out of sight.


The managers of public companies serve shareholders and are subject to government and regulatory oversight. Instructed to clean up their companies’ acts, they will do so. But the path of least resistance for them likely will be to sell off the dirtiest parts of their portfolios to private companies whose investors and boards do not face the same scrutiny.

We’ve seen this pattern play out before. BP, the former British Petroleum, which says its name now stands for “beyond petroleum,” has repositioned itself as one of the more progressive oil and gas companies and shifted its portfolio toward renewable energy. In late 2020, BP sold its oil reserves on Alaska’s North Slope to Hilcorp, a private company. This type of transaction between companies is common, and the climate impact of this deal is significant.

Oil from the North Slope results in more greenhouse gases in the atmosphere per gallon of gasoline than does oil from many other reserves. Now this high-emissions asset has disappeared from BP’s portfolio, where climate watchers could apply pressure through public meetings, shareholder actions, and consumer shaming, and it has landed at Hilcorp, a private and far less scrutinized entity with a reputation for risk-taking and maximizing the value of assets. Those fields will continue to pump oil, and they could do so in ways that increase their emissions now that they’re further from the public eye and face lower disclosure requirements.


I should note that there is nothing inherently wrong with private companies; I proudly serve on the boards of both public and private companies. But in this case, when the goal of public policy should be to decarbonize the world, we cannot rely on the tools of public company governance to get us there if the assets can readily move into private hands and out of public view.

Investors who make climate-change mitigation a key element of their investment strategies are not blind to this risk. BlackRock, the enormous asset manager famous for its passive index funds (it manages nearly $9 trillion worth of global equities), has recently begun speaking out more strongly in favor of climate causes. After calling climate change a form of investment risk in his shareholder letter last year, BlackRock’s CEO, Larry Fink, used his firm’s shareholdings to back the climate activists in a group called Engine No. 1 for election to Exxon’s board. Fink himself has pointed out the danger that public companies will green themselves but not the world. “If we are really sincere about the world having a net zero carbon [status] in 2050, we cannot move these parts of the economy out of public entities into private hands,” he has said.


The only solution for the environmental arbitrage of moving dirty assets from public to private companies is consistent carbon regulation and pricing across companies of all ownership structures, shapes, and sizes. If value for shareholders can be created by shifting assets from a more scrutinized type of company to a less scrutinized type, you can bet that investors and managers will make it happen. The answer is not to give up on capital markets but rather to use the tools of regulation, pricing, and other policies to align companies’ incentives with the world’s.

The simplest and most efficient tool would be a sizable carbon tax.

While the challenge of creating a consistent set of global regulations on greenhouse gas emissions across public and private markets is daunting, the will among investors has never been stronger. Forward-looking companies too are asking for government regulation. Shell’s CEO, Ben van Beurden, says governments need to create a level playing field through consistent incentives. Because corporate leaders have a fiduciary responsibility to shareholders, going green before governments force them to do so could be a tricky or even legally risky path if the companies accomplish this in ways that don’t maximize profitability.

The recent victories in courts and shareholder actions against public companies are important milestones, and activists will redouble efforts to make companies account for the financial risks of climate change. Investors will expand these efforts beyond oil and gas to steel, airlines, shipping, cement, and many other carbon-intensive sectors of the economy. However, all that effort, while necessary, will be insufficient on its own if the dirtiest assets can easily be moved away from the scrutiny that public companies face. That means shareholders, management, and activists should focus their attention where it matters most: on holding governments accountable.


Markets cannot achieve decarbonization on their own. However, markets are our most powerful tool for putting policy into action and unleashing the power of creativity to solve problems like decarbonization. It’s not often that activists, CEOs, and investors make common cause to ask governments to act, but it’s happening now.

John Mulliken, the former CTO of Wayfair, is the founder of, which develops and invests in decarbonization strategies.