Cleaning up after clean energy isn’t straightforward.
ESG/stakeholder capitalism activists have spent a lot of time (and, indirectly, shareholders’ money) encouraging oil companies to diversify into low-carbon businesses.
Indeed there was a time when the Bank of England was saying things like this (via The Guardian, March 3, 2015):
Insurance companies could suffer a “huge hit” if their investments in fossil fuel companies are rendered worthless by action on climate change, the Bank of England warned on Tuesday.
“One live risk right now is of insurers investing in assets that could be left ‘stranded’ by policy changes which limit the use of fossil fuels,” said Paul Fisher, deputy head of the bank’s prudential regulation authority (PRA) that supervises banks and insurers and is tasked with avoiding systemic risks to the economy.
Who was the governor of the Bank of England at the time?
Clue. Today he is the prime minister of Canada.
Here’s what the Financial Times’ Pilita Clark was saying back then:
Of all the recent ideas climate change campaigners have come up with to convince the world to do more to curb global warming, none has been as potent as the concept of stranded fossil fuel assets. In simple terms, the theory is that vast reserves of oil, gas and coal will be left stranded as the world shifts towards cleaner fuels to avoid the risk of climate change.
BP was one oil company that eventually fell for that line. Not too long later it became obvious that it was a mistake. When one institutional investor complained in early 2024. BP pushed back:
“We have met with most of our major shareholders recently and continue to receive support for our strategy.
“We continue to make significant progress, remain focused on delivery, and are confident the strategy will grow the value of BP and deliver sustainable long-term value for shareholders.”
I wrote that this was no great surprise:
It’s probably true that many of BP’s major shareholders are happy with the company’s strategy, but then, like BP’s own management, they are playing games with other people’s money. Note too the emphasis placed by the spokesman on “sustainability” and “long-term value.” The first is a reliable marker of humbug, the second is a perennial excuse for underperformance.
In all probability, BP should sell off its renewable businesses (given — we are always being told — what a marvelous opportunity such businesses are, there will be plenty of buyers) and concentrate on fossil fuels, maximizing return by focusing on doing what it knows best. And if its management believes that the energy “transition” means that it should be investing less in new production, it should return surplus capital to its shareholders. They can then decide for themselves how they might want to invest in the exciting green future.
Or not.
By June 2024, BP was “pausing” its “offshore wind projects” amid investor discontent over its commitment to renewables. The discontent was that the company was decarbonizing too much, not too little.
Seven months later, the company announced that it was slashing spending on renewables while increasing it in oil and gas.
And then the write-downs began. In January this year, the company announced that it expected to book $4 billion to $5 billion in fourth-quarter impairments, mainly tied to its low-carbon energy businesses. In the second quarter the company wrote down its not-at-all stranded green assets by another $1.1 billion. In August, BP said that it was putting its $4 billion US biogas business up for sale.
And now, via Reuters today:
BP estimated on Tuesday its third-quarter refining margins tripled from last year as the Iran war boosts profits for oil majors, but also flagged $3 billion to $4.5 billion in impairments relating to its gas and low-carbon energy segment. . . .
BP declined to provide details of the latest writedowns.
Impairments in BP’s transition businesses over the last year have added up to around $10 billion, or about 10% of BP’s equity before the COVID pandemic earlier this decade, which “showcases the damage BP’s previous adventures have caused,” RBC analysts said in a note, referring to the foray into renewable energy the group abandoned last year.
“We would imagine the house is now clean, but we also thought that last quarter,” RBC said.
Cleaning up after clean energy isn’t straightforward.
BP’s newish CEO has admitted that the company’s management has “not been careful stewards of shareholder capital.”
ESG or shareholder value: Choose one.
BP has had a number of CEOs since embarking on its green folly. One survivor from the green old days has been Amanda Blanc, BP’s senior independent director. In January 2024, she refused to meet the institutional shareholder, Bluebell Capital, objecting to BP’s shift to renewables, which was odd. But not.
Blanc has proved an effective manager of Aviva, one of the U.K.’s leading insurance, wealth, and retirement businesses. She was in the news about six months ago with this story, reported in the Daily Telegraph:
“Amanda Blanc, the chief executive of Aviva, has said all senior white male recruits must get final sign-off from her as part of a diversity drive to stamp out sexism in the financial services industry.”
Hmm. . . .
More relevant for BP is that in April 2022, Blanc was appointed co-chair of the U.K.’s Transition Plan Taskforce, another creation of the former Conservative government, during — what a surprise — the time Boris Johnson was prime minister. The idea behind the task force was:
“to develop the gold standard for UK firms’ climate transition plans. The new regime being developed by the Taskforce will require UK financial institutions and listed companies to develop and publish rigorous and robust transition plans that detail how they will adapt and decarbonise as the UK moves towards a net-zero economy by 2050.”
Mad.
Blanc is now leaving BP, to the regret of the chairman (the third this year) who I hope was just being polite.