, February 20, 2024

From beyond petroleum to back to petroleum— from fighting climate change to funding pensions?


  •   5 min reads
From beyond petroleum to back to petroleum— from fighting climate change to funding pensions?

BP used to say beyond petroleum now it is more like back to petroleum as it chooses to prioritise funding pensions over fighting climate change — or is that fair?

BP used to be the darling of the pensions industry. Take this article from the BBC in 2010 — "£1 of every £7 paid in dividends to UK pension funds by FTSE100 companies comes from BP," it states.

But then the BBC piece was written a couple of months after the Gulf of Mexico oil spill — a disaster that is thought to have killed 800,000 birds  and left 8,000–12,000 people in the US coastal region affected by the disaster temporarily unemployed. It is thought that the oil spill eventually cost BP $65 billion.

The spill had a devastating impact on the region and then had a devastating impact on the company that was so important to the British pension industry.

Before the spill, the company focused on the famous Beyond Petroleum re-branding. After the spill, it focused on survival, or, if you will, beyond the spill.

And that takes us to today. The company made an annual profit of $27.6 billion in 2022 — around a fifth of its market value. So it is spending US$2.75bn on share buybacks and increased dividends to 6.61 cents, which, combined with dividends over the previous 12 months, means an investment in BP yielded around four per cent from dividends over 12 months.  But the share buybacks over the last year represent around eight per cent of the company's value. So, in other words, BP is using the profits it is making from oil to give an awful lot of money to shareholders.

BP has long been a favourite stock amongst UK private investors. It is tempting to conclude it is supporting pensions at the expense of investing in the climate.

Sustainable funds in quarterly loss but look long term
Sustainability funds take a hit in the final quarter of 2022, but then again, investing in sustainable funds never was about quarterly thinking

And now, controversially, the company has revealed plans to scale back on previous plans to reduce oil output. This is because the C02 output resulting from BP's activities is not going to fall as fast as previously predicted, and frankly, much of the UK media, typically targeted at an older audience, seem to relish it. If you want to summarise, the narrative presented, it is that BP has grasped the reality of the continued importance of oil over the renewables pipe dream. It is a narrative that a certain demographic seems to like and another demographic detests.

So, on the one hand, you have the critics, who call for a greater windfall tax on the profits enjoyed by BP and, indeed, Shell, and point to the share buybacks as evidence of a company that is putting short-term interests of shareholders over the future of the planet. On the other hand, you have those whose response is to deride the 'woke' critics, call them naive and remind us that if it weren't for oil, we would still be scrambling in the mud to make a living to fund what was once a miserable lifestyle.

The Proactive investment publication even said: "Woke Twitter will lament such a transgression," away from renewables.  Not sure why it thinks Twitter is woke; maybe it was being ironic.

But we are also seeing this narrative emerge of how baby boomers — already unpopular with a younger anti-Trump and anti-Brexit electorate — and their considerations are being put before the planet.

Except BP isn't as important for pensions as it used to be. Since the oil spill, its importance has diminished.

According to this Guardian piece, Britain's main pension funds only own around 0.2 per cent of BP and Shell.  It turns out that the pension funds are much more diversified. These days and hold more international assets. Instead, it is the likes of BlackRock, Vanguard, and Asian and Norwegian sovereign wealth funds that are the big beneficiaries of oil company dividends — which, in turn, leads one to think about Black Rock which loudly proclaims its ESG agenda and Norway's sovereign wealth fund that promises to actively campaign for greater ESG focus among the companies in which it is a shareholder.

The many lives of BP

BP has its fair share of critics and looking back on its history, the company hasn't always covered itself in glory. In the late 1990s, the company was acussed of human rights violations In Columbia. But under the leadership of John Browne (now Lord Browne), it tried to clean —or maybe green — its image. In 1997 it left the Global  Climate Coalition, which consisted of several powerful organisations denying climate change. Lord Browne became a vocal believer in climate change, and under his leadership, BP went for the Beyond Petroleum re-brand.

But even that had its critics, people who doubted the authenticity of its green agenda. For example, world-famous climate change scientist Michael Mann says it was BP who pioneered carbon calculators to distract the public from big oil's wrongdoings.

How ethical is BP's ethical move, and does it matter?

Then the oil spill happened, and for about a decade, BP focused on survival.

And finally, to come up to date, Bernard Looney, with Instagram as his communication tool of choice, takes the helm and sings the song of green technology. But while he conjures green ideas from his sleeves — maybe he sings Greensleeves, the reality of the beat is more money from oil and, now, more investment into oil.

BP — lesser of evils?

BP may or may not have deserved the fines imposed on it after the oil spill, but it does seem odd that other oil companies have committed the greater sin of actively campaigning to decry climate change, even though their scientists have known about it since the 1970s escape fine-free.

By all means, criticise BP, but never forget there are worse offenders in the oil industry who seem to escape the public's ire largely.

What next

But is BP, along with the rest of the oil industry, miscalculating?

Renewables are still advancing super-fast; the falling energy cost they generate and their market penetration seems to be following an exponential trajectory. Likewise, electric vehicles seem to follow a similar course.

We will need oil as fuel (as opposed to use for plastics) during the transition — this is undeniable — but the period in which we need oil does seem to be shortening. And too many onlookers fail to grasp the significance of exponential change (onlookers rarely do;  remember the initial reaction in the West to an exponentially spreading virus called Covid-19). Instead, the onlookers focus on the short-term and the surely short-lived oil comeback, not factoring in the speed of change.

Oil companies actually have incredibly low market valuations relative to profits. Therefore, it seems the markets understand, even if the penny hasn't dropped amongst the media, that oil is fast becoming a stranded asset, and all oil companies can do is either hand the proceeds from oil to shareholders aware of their diminishing future lifespan or invest in renewables — no other strategy has merit.

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