When Bernard Looney became CEO of BP in 2020, he promised to reinvent the British oil major as a “leaner, faster-moving and lower-carbon company.” The company was one of the first oil majors to commit to being net-zero in 2050 and was showing signs it was open to speeding up its transition to a low-carbon future. And at the end of January, the company even predicted that oil demand would peak by the early 2030s.
But over the last few days, Looney has found himself trying to defend moves by the company that have been seen as slowing down its transition away from fossil fuels.
Last week, BP said it will cut its Scope 3 emissions by only 20% to 30% by the end of the decade – a significant reversal from its original 35% to 40% target announced in 2020. The company is still committed to being net-zero by 2050, but observers say it’s a lot harder to see a pathway to reach such a goal without a stronger target for 2030.
For Looney, this move didn’t mean BP was abandoning the green transition. While yes, the company was reducing its 2030 target for Scope 3 emissions (those up and down its value chain), BP announced it would pour an additional US$1 billion per year into “transition growth,” Looney argued. He told Barron’s that the announcements didn’t mean the company was “backing away” from the energy transition – it was “leaning in,” he said.
Meanwhile, BP also announced it will spend around US$1 billion more per year on fossil fuel production.
“Shell’s ‘Energy Transition Spend’ and BP’s ‘Transition Growth’ are unclear and unverifiable smokescreens to obscure the fact that the bulk of their investments remain in fossil fuels and are even increasing in the case of BP,” Mark van Baal, the founder of activist shareholder group Follow This, said in an email.
It’s difficult for climate-focused investors to see the scaled-back targets and the increased investments in fossil fuels as anything but a betrayal of BP’s commitment to transition to a low-carbon future. Follow This plans to introduce a resolution at BP’s annual general meeting in May calling for the company to align its 2030 targets with the Paris Agreement. In order to do that, BP’s emissions would need to fall by 45% by 2030.
Other investors have said these moves also raise governance concerns, as most shareholders voted in favour of the old targets just nine months ago. Five of the company’s top 10 institutional investors are members of Climate Action 100+, an investor initiative that seeks to put pressure on emitting companies to act, reports Reuters, citing data from Refinitiv Eikon.
“In the context of a very strong financial outcome, those investors with net-zero goals, including many of our clients, will be concerned at such a material change to BP’s 2030 absolute emissions reduction target,” Bruce Duguid, the head of stewardship at investment manager Federated Hermes, told Reuters.
Looney has also pointed to past investments to argue that his company is sticking to its green commitments. In 2022, BP invested US$4 billion (or 25% of its total investments, including capital expenditures and acquisitions) in renewables. This was an increase from the 19% of BP's investments that were classified as sustainable in 2021, according to Corporate Knights sustainable economy intelligence. But BP also invested $5.3 billion in oil and $3.2 billion in gas in 2022, according to Follow This. Activist investors and environmentalists had hoped that the record profits the company made in 2022 (BP reported a record US$27.7 billion in profits, as the Russian invasion of Ukraine pushed energy prices sky-high) might result in a more significant scaling up in renewable investments.
To climate-focused investors, the continued investment in fossil fuels and the scaling back of climate targets is shortsighted given what they see as the need for BP to decouple itself from oil and gas production or face future risks of litigation, regulation and stranded assets. Van Baal says that BP’s reversal is a “wake-up call” and that it will be up to shareholders, together with major investors, to get the company back on track.
“Investors have much more to worry about than the return on capital of oil majors. They have to worry about the returns of their entire portfolio in the global economy, and these are in great danger if the world fails to reach the goal of the Paris Accord,” he said. “They are stewards of the global economy and should realize that the only formal power they have is the power of the vote.”
BP did not respond to a request for comment.
