2030 Finance | February 4, 2019

BP agrees to align ‘capex’ with climate goals, as institutional investors flex muscles on risk

David Bank
ImpactAlpha Editor

David Bank

ImpactAlpha, February 4 – Divide and conquer: Growing splits in every industry, including oil, set up natural experiments between companies’ approach to the low-carbon transition and their resilience to the disruptions ahead. Now comes BP which, under pressure from global pension funds, agreed to align its capital-expenditure, or capex, with the Paris climate accord. Taken to its logical conclusions, such accounting could accelerate the shift of investment away from fossil fuels. Oil companies’ spending on low-carbon assets accounted for only about 1.3% of their total capex last year.

    • European tilt. Together with Shell’s agreement, also under institutional pressure, to link short-term carbon emission reductions with executive pay, BP’s agreement to recommend a ‘Yes’ vote on a climate-risk shareholder’s resolution signals the deepening divide between European oil and gas majors and most U.S. oil companies. A report from CDP last year ranked BP 11th among majors for its resilience to the low-carbon disruption that already is underway. While BP ranked 5th in its pursuit of low-carbon opportunities and its corporate governance, low resilience to “Physical Risks” (16th) pulled down BP’s score.

European oil and gas majors hedge climate risks with low-carbon investments

    • Different models. Shell is staking out its transition into low- or no-carbon energy production. BP, in contrast, is signaling it will remain an oil and gas company, “but it will invest only in projects that are viable in a decarbonizing world (which effectively means shrinking over time),” says Andrew Logan, who directs the oil and gas program of Ceres, which helped press the resolution. An analysis from Carbon Tracker last year suggested that as much as 30% of BP’s future capex is outside the scope of the Paris agreement “which means that this commitment will entail real change,” Logan told ImpactAlpha. Shell and BP, he said, “seem at least to be charting a direction that we can encourage other companies to follow.”

We’ll always have Paris, but is that enough to avert climate catastrophe?

    • Institutional shift. Leading global pension funds that are seeking to force a reckoning on climate-related risk. Concessions at Shell and BP came after pressure from Climate Action 100+, representing institutional investors representing $32 trillion in assets that are targeting the biggest greenhouse gas emitters (see, “Pension funds tell companies: ‘No excuses’ for inaction on climate change). Earlier, Maersk, the world’s largest container shipper, pledged to be carbon-neutral by 2050. Investors, companies, workers and communities “have a shared interest in urgent and bold action to fulfill the Paris Agreement goals,” Anne Simpson of $354-billion CalPERS said in a statement.