‘Grotesque greed’ — but are energy windfall taxes the answer?


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As the planet warms, as war rages in Ukraine, and as billions of people grapple with the impact of surging energy prices, what is the appropriate level of profit for the fossil fuel industry?

The latest quarterly earnings from the world’s oil majors have added to their political travails, as they stand accused of profiteering on the back of conflict and financially stretched consumers. Like many of its peers, ExxonMobil shattered its quarterly earnings record in the three months to June, with a monster net profit of $17.9bn — that’s $197mn per day.

For UN secretary-general António Guterres, it’s simply “immoral” for ExxonMobil and its rivals to “to be making record profits from this energy crisis on the backs of the poorest people and communities, at a massive cost to the climate”.

But it’s far from clear that Guterres’s proffered solution of windfall taxes is the best way forward. As you’ll read below, there’s a powerful case to be made for seizing this moment to undertake structural reforms rather than short-term cash grabs. We’d love to hear your thoughts on the best way for governments to approach oil companies’ bumper earnings: drop us a line at moralmoneyreply@ft.com.

Also today, Patrick looks at how companies are tackling another area of huge political controversy: access to abortion in the US. (Simon Mundy)

Investment in developing countries is essential to tackling climate change and global inequality. Yet for ESG investors, social challenges, governance flaws and poor data can be obstacles to including emerging market companies in investment portfolios. This is the topic of our next Moral Money Forum report. In your ESG investment strategies, are you directing less capital to emerging market companies — or avoiding them altogether? What are the obstacles to allocating more capital to companies in these markets? And what compelling research and data have you seen that might inform our reporting? Share your thoughts here.

Global momentum grows for energy windfall taxes

UN secretary-general António Guterres has been using his bully pulpit with growing stridency on climate issues over the past year — notably at the outset of last year’s COP26 summit, when he urged humanity to stop treating nature “like a toilet”.

Even by Guterres’s standards, though, his latest broadside — against a fossil fuel industry enjoying bumper profits thanks to soaring energy prices — was strikingly blunt. “I urge people everywhere to send a clear message to the fossil fuel industry and their financiers,” he said on Wednesday. “This grotesque greed is punishing the poorest and most vulnerable people, while destroying our only home.”

But Guterres went beyond merely haranguing the oilmen. He urged “all governments” to tax their “excessive profits”, and use the proceeds to support vulnerable people struggling to afford food and energy.

Guterres’s intervention comes amid rising political pressure for energy sector windfall taxes from the US to Europe to Australia. But does Guterres have much chance of seeing widespread uptake of his suggestion? And is it even a good idea?

One country that has moved relatively quickly on this front is the UK, where Rishi Sunak, then chancellor, introduced in May a levy on oil and gas producers in the North Sea, pushing their tax rate from 40 per cent to 65 per cent of profits. Sunak said the new regime would raise an additional £5bn in its first year, which would help to offset the rising cost of living for households.

Meanwhile, Spain’s government is promising to introduce an energy windfall tax to help pay for a cut in fuel duty for consumers. Leftwing politicians in France are continuing to push a similar policy even after it failed to pass a parliamentary vote last month, while Australia’s new Labor government is under rising pressure from the Greens to introduce a new short-term levy. India has already brought in one on oil exports (although this seemed aimed more at preserving domestic supply than slashing excessive profits). Even in the US, where few analysts see any chance of an energy windfall tax clearing Congress, some lawmakers are trying to push for one, as President Joe Biden complains that ExxonMobil is making “more money than God”.

In the UK, Sunak’s move triggered loud resistance from energy companies and their lobbyists, with warnings that it would deter investment in the UK energy sector. Such claims got a sceptical audience from analysts such as Richard Black at the Energy and Climate Intelligence Unit. They would be more convincing, he told me, if companies had shown signs of channelling their recent bumper profits towards capital investment, rather than rushing to pay it out to shareholders through stock buybacks.

Nonetheless, abrupt windfall taxes are no one’s idea of a predictable policy environment. Carefully considered structural changes to the tax system around oil and gas might be the best approach.

Graham Kellas and Fraser McKay, at energy consultancy Wood Mackenzie, told me the UK would do better to follow the precedent set by countries such as Canada, Nigeria and Brazil, where higher tax rates automatically kick in when prices reach a specified level. That would provide the predictable fiscal environment that businesses say they want to see, while also tackling “excessive” energy profits during price surges.

Although Wood Mackenzie and others have been suggesting such a move for some time, the UK Treasury has yet to bite. It hasn’t helped, Kellas said, that the energy companies themselves have been less than energetic in their support for such a reformed system, which could end up increasing their total tax bill, depending on how it was structured.

With energy prices set to remain elevated for some time to come — thanks largely to the shockwaves from Russia’s war in Ukraine — so too will the political temperature surrounding cash-flush oil and gas companies, Black told me.

“The thing is, the oil and gas companies have done nothing to merit this extra level of money,” he said. “They haven’t innovated; they haven’t come up with brilliant, more efficient processes. It’s basically been happenstance.” (Simon Mundy)

Microsoft becomes a bellwether for investor abortion interest

The Microsoft office in New York
An activist investing platform has said it will file a shareholder proposal at Microsoft’s annual meeting seeking information about political spending tied to abortion laws © Swayne B Hall/AP

In a regulatory filing this week, Starbucks disclosed for the first time that employees will be eligible for travel expenses to access an abortion when the services are not available within 100 miles.

As the Starbucks case suggests, abortion — a topic that was previously rarely discussed at shareholder meetings — is becoming an issue of interest to investors ever since the Supreme Court in June struck down the federal right to the procedure. In the months ahead, shareholders are likely to demand more information about corporate abortion policies as the issue is riddled with risks.

Shareholder pressure has already arrived at Microsoft. Tulipshare, a London-based activist investing platform, has said it will file a shareholder proposal at Microsoft’s annual meeting this year to ask for more information about political spending tied to abortion laws. Giving campaign funds to lawmakers attacking abortion access is at odds with Microsoft’s policy, which, like Starbucks, pays for abortion travel.

Microsoft’s public support for abortion travel is undercut by campaign contributions to lawmakers who have targeted abortion access, Tulipshare’s Jenna Armitage told Moral Money. “This proposal gives [Microsoft] an opportunity to fix this misalignment and set a precedent for other companies to follow as well.”

Microsoft declined to comment.

Shareholder petitions demanding more political spending disclosures have been popular with big asset managers. And the risks to investors are real. Many Republican-controlled states are threatening to ban financial groups if they appear to be mistreating oil and gas businesses out of concern for climate change. One could readily expect Republicans to threaten companies over their abortion travel policies as well.

In addition to being one of the world’s biggest companies, Microsoft scores highly on environmental and social criteria. How it handles the shareholder and political pressures on abortion will be closely watched by the rest of the market. (Patrick Temple-West)

Smart read

  • How is the explosive rise in global energy prices playing out in Afghanistan under the Taliban? This disturbing FT report from the country’s north, with powerful photography, describes how child miners as young as eight are working in hazardous conditions to help drive a coal export boom that’s proving lucrative for the Islamist regime.

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