Take Five: Profit Over Planet

A selection of the major stories impacting ESG investors, in five easy pieces.?

This week saw oil and gas firms lean further into near-term priorities.

Fool me once – Reports that UK-based fossil fuel giant BP has abandoned its commitment to cut oil and gas production by 2030 were greeted with dismay earlier this week. According to Reuters, CEO Murray Auchincloss?– appointed in January – will no longer keep to a pledge to reduce output by 25% over the next five years, based on the belief that investors care more about near-term returns than the firm’s ability to adapt to a future powered by renewable energy . BP is believed to be seeking investments in the Middle East and the Gulf of Mexico to boost its share price. It is not known whether these projects are sufficiently short-term to allow the company to maintain its commitment to net zero by 2050. Nor is it known how Auchincloss intends to broach the subject when he presents his updated strategy at an investor day next February. Carefully, but clearly, one assumes – given the fallout last time BP decided to water down its climate commitments. When the firm replaced its original plans for a 40% output cut with a 25% reduction in February 2023, its failure to warn British pension funds sparked a revolt – aimed at Chairman Helge Lund for what many regarded as a failure of governance . Reclaim Finance?Stewardship Campaigner Agathe Masson has called on asset owners to go further this time and vote against the re-election of all directors at next year’s AGM, arguing “BP might be happy to see the planet burn in the name of profits, but investors must take a longer view and reject this climate-wrecking strategy”.

Fail to plan …? – Ahead of COP16, the World Wide Fund for Nature (WWF) released its ‘Living Planet Report ’, which provided a somewhat harrowing stocktake of plummeting species counts and habitats “on the edge of very dangerous tipping points ”. The report did its best to flag isolated successes – such as increases in mountain gorilla populations in East Africa – but these did little to offset the headline finding that wildlife populations had shrunk by an average of 73% over the past 50 years. Separately, the UK government was warned that it risked losing ￡1.5 trillion (US$1.96 trillion) in natural capital assets due to high levels of degradation by Natural England Chairman Tony Juniper. This followed news last week that the UK would miss the deadline to publish its national biodiversity strategy and action plan (NBSAP) ahead of COP16. According to the WWF’s NBSAP Tracker, the UK is far from alone in this case, with only 10% of countries so far having submitted updated plans. Those putting finishing touches to their NBSAPs might take advantage of a recent research paper from the International Monetary Fund on nature-related economic and financial risks and policy considerations.

Within reach – Last week, this blog voiced concerns that a muted response to China’s recent economic stimulus package might have wider implications, specifically for the pace of the renewable energy transition . This week, it turned out our fears were not justified. Not, you understand, because the Chinese economy is now riding back to world-beating growth (the stock price surge that greeted the return of trading after Golden Week turned into a damp squib when officials failed to deliver on expectations of a new ‘bazooka’ ). Rather, according to the International Energy Agency (IEA) , the preconditions are already in place for China to account for almost 60% of all renewable capacity installed worldwide by 2030. The IEA’s Renewables 2024 report forecasted that China would house almost half of the world’s total renewable power capacity by the end of the decade, up from a third in 2010. This doesn’t quite mean we’re on track to meet the COP28 goal of tripling renewable energy capacity by 2030 – the IEA suggests the growth rate is closer to 2.7 times – but it’s still “entirely possible” for governments to reach that target if governments (and investors ) take near-term opportunities for action.

Balance of power – Divided opinions about governance standards and listing rules were evident in the US and Europe this week, while long-running battles on these themes rumbled on in the UK. Europe formally adopted the Multiple Vote Share Structures Directive , designed to allow smaller firms to list without losing control to external investors. Shareholders for Change warned the legislation would weaken investor rights in a similar way to dual share class structures in jurisdictions such as the UK and the US, not least making it harder to pass sustainability-related resolutions . Meanwhile, JP Morgan CEO Jamie Dimon weighed in on the side of companies and their early-stage investors, asserting that policymakers had “made it hard to go public”, citing reduced availability of research and rising expenses from litigation and regulatory filings. Dimon did not share his views on the balance of power between investors and owners, but there is little common ground on the subject in the UK. The Local Authority Pension Fund Forum (LAPFF) – which represents 87 local government pension schemes – briefed The Times about its ongoing frustration with the London Stock Exchange (LSE), including what it sees as a campaign by CEO Dame Julia Hoggett to weaken investor protections in order to increase the UK listings pipeline. Typically, this effort involves the Capital Markets Industry Taskforce , which is chaired by Hoggett and includes no pension fund representation. The LAPFF appears to have lost its patience after the latest in a string of letters to LSE Group Chair Don Robert focused on the weakening of listings rules went unanswered and, according to a spokesperson, AWOL.

Part of the playbook – ExxonMobil added to the ever-increasing incidence of climate- and environment-related litigation this week by taking the Dutch government to court over the closure of a large gas field in 2018. The fossil fuel giant used the Energy Charter Treaty (ECT) – which most European member states are in the process of leaving – to claim compensation, arguing that previous government never intended to reach a settlement after production was curtailed over concerns it was causing earthquakes. The US firm said the former administration had taken “unilateral measures that arbitrarily disadvantaged ExxonMobil as an investor” – precisely the situation the ECT was designed to prevent. Some lawyers have suggested this is a longshot, but litigation might now be an ingrained part of the US firm’s playbook, after its trenchant response to climate-conscious shareholders earlier this year.

This is my weekly blog, also published on www.esginvestor.net , in which I collate and comment on some of the main news items of the week from a sustainable investment perspective. Please click through and subscribe.