Greener BP must do more than talk tough on the climate crisis.
A company steeped in oil and gas production may not find it easy to convince investors of its environmental credentials.
This is serious stuff,” said BP’s Bernard Looney. The chief executive, speaking last week at the oil giant’s three-day investor event, was talking tough on the need to tackle the climate crisis. He could just as easily have been referring to the existential tightrope that BP, and others in the fossil fuel industry, will need to walk between investor confidence and the rising public pressure to slash their greenhouse gas emissions.
Over the course of three days and 10 hours of executive presentations, Looney’s new leadership team sought to convince investors that their plan to become a carbon neutral company will allow them to toe this line successfully. BP’s nascent renewable energy interests will grow while the oil production business that has powered the company for over 110 years will begin to shrink within the next decade. A whiplash of clean energy innovation, carbon capture technologies and emissions offsetting schemes will then power the company to net zero carbon by 2050.
In the minds of investors, there is no question that clean energy is a lucrative market, which can offer them exponential growth in the decades ahead as economies swap polluting fossil fuels for technologies that can meet our energy demands without the threat of soaring carbon emissions. But whether a company steeped in decades of crude and gas production will be able to harness this green growth remains to be seen.
For environmentalists, the question is whether BP’s industry-leading climate ambitions will go far enough, and fast enough, to help prevent a runaway catastrophe. The plans have found favour in even the greenest corners of the climate debate. But far from claiming a pass for itself from the rising backlash facing the fossil fuel industry, BP should prepare for its toughest scrutiny yet. The company’s willingness to be bold, and to be open to accountability, will only underline the tensions every fossil fuel company must now negotiate.
Mining giant Rio Tinto will stand as a cautionary tale for any executive who dares to forget that they are operating in very different times. The ousting of chief executive Jean-Sébastien Jacques, and two of his closest deputies,over the destruction of a 46,000-year-old Indigenous heritage site in Western Australia stands as a watershed moment for environmental, social and corporate governance.
It is a notion that BP has done well to grasp earlier than most: the fossil fuel industry has entered an age of unprecedented accountability in which the stakes could not be higher. Only days after BP Week concluded, BlackRock – one of the largest financial backers of the fossil fuel industry – set out its own actions to help steward a “fundamental reshaping” of the financial sector as some of the world’s biggest companies adapt to the energy transition. Earlier this year BlackRock boss Larry Fink admitted that “awareness is rapidly changing” and that a “significant reallocation of capital” away from fossil fuels will happen sooner than many expect. As a result, sustainability would be at the heart of its investment decisions, he said. Since then, BlackRock claims to have voted 55 times against directors at 49 companies for failing to make progress on tackling the climate crisis.
But BlackRock is unlikely to receive the same grudging respect from environmentalists for the small steps taken in recent months. The investment giant has far further to go in using its financial heft to help move corporate laggards towards a greener future. And it can expect climate campaigners to pay careful attention not only to how many times it votes against the boards of fossil fuel companies but to how often it fails to take the opportunity to advocate for positive action. Its record on supporting sustainable regulation for the financial sector will come into question too. This is, after all, “serious stuff”.
Negative interest rates may be needed at Bank of England
Negative interest rates are on the Bank of England’s agenda and if they arrive, possibly next year, they will mean even lower borrowing costs for households and businesses. If the economic costs of the pandemic worsen, which they almost certainly will, this will bring welcome respite.
Until now, the Bank has refused to push its base rate below zero, believing that lenders will suffer a collapse in profits. If a bank needs to make a margin of one or two percentage points on savings rates to make a loan profitable, a -1% mortgage would require savings rates of -3%. That simply isn’t going to happen – because in those circumstances it would be better for savers to keep their money under the mattresses.
In Denmark there is already a negative-rate mortgage. But the funding for it comes from institutional investors, which are influenced by the negative rates set by the Danish central bank. The Bank of England says it hasn’t quite worked out how to achieve what the Danes are already doing, but a review before Christmas is expected to overcome the last hurdles. If this sounds like foot-dragging, that’s because it is. Maybe the Bank is also worried that even funding commercial mortgage loans indirectly sounds like socialism. Unsurprisingly, the US Federal Reserve refuses to contemplate it.
The European Central Bank and the Bank of Japan have no such qualms, but the imperative for them is more acute. Investors view them as the safest of havens and have been pouring savings into their economies. This has the effect of increasing their relative exchange rates. To push them down, they have used negative rates as a deterrent.
With the pound already low on concerns over Brexit, the UK does not have this problem. But if the economy slides into recession next year, negative rates should be in its armoury.
Wise words from Wolfson
Next boss Simon Wolfson might not be a member of Sage, but he is sage. The Tory peer produced a comprehensive study on the implications of a no-deal Brexit, and last week added to his canon a forensic take on the highs and lows of running the FTSE 100 business during a pandemic.
It’s worth reading – even if it runs to 68 pages – as while many fashion retailers are fighting for survival, Next’s profits and sales have staged a remarkable recovery. The company has a slick website that was able to capitalise on the surge in online shopping. “Some lockdown habits have stuck,” says Wolfson – he wasn’t talking about baking sourdough bread, but about the British shopper’s love affair with the web.
The pandemic has been “expensive and miserable” but remarkably some good has come from it, he says. Without long commutes and annoying colleagues, solitary tasks such as coding and product design have got done quicker. Restrictions on overseas travel have resulted in faster decision-making.
The biggest negative of working from home has been the lack of spontaneous interaction between colleagues, reckons Wolfson, adding: “We have missed the chance conversations, unplanned questions, the ability to learn from colleagues, along with the training and camaraderie that the office provides.” Large video calls turn meetings from productive exchanges of ideas into boring, one-way lectures, he says.
As businesses weigh up new working practices, Wolfson promises to avoid making “edicts from the boardroom” and allow the balance between working from home and in the office to evolve over time.
“We have empowered individuals and small teams to make more decisions outside of the corporate machine,” he says. “For many, this has been liberating and the best people have increased and improved their creative output.”
It remains to be seen whether the pandemic will lead to enlightened ways of working, but this is a start.
19 September 2020