Small logo Subscribe to leading news on impact investing. Learn More
The Brief Originals Dealflow Signals The Impact Alpha Impact Voices Podcasts Agents of Impact Open
What's Next Capital on the Frontier Measure Better Investing in Racial Equity Beyond Trade-offs Impact en las Americas New Revivalists
Local and Inclusive Climate Finance Catalytic Capital Frontier Finance Best Practices Geographies
Slack Agent of Impact Calls Events Contribute
The Archive ImpactSpace The Accelerator Selection Tool Network Map
About Us FAQ Calendar Pricing and Payment Policy Privacy Policy Terms of Service Agreement Contact Us
Locavesting Entrepreneurship Gender Smart Return on Inclusion Good Jobs Creative economy Opportunity Zones Investing in place Housing New Schooled Well Being People on the Move Faith and investing Inclusive Fintech
Clean Energy Farmer Finance Soil Wealth Conservation Finance Financing Fish
Innovative Finance
Personal Finance Impact Management
Africa Asia Europe Latin America Middle East Oceania/Australia China Canada India United Kingdom United States
Subscribe
Features
Series
Themes
Community
Data
Subscribe Log In
More

Oil industry reckoning puts focus on pay incentives



ImpactAlpha, May 12 –  The COVID crisis cratered demand, and prices, for oil. Now it’s forcing oil and gas majors to reckon with a broken business model.

“The world has fundamentally changed,” declared Shell CEO Ben van Beurden last week as he slashed the oil giant’s dividend by two-thirds – the first such move since the 1940s. Other oil giants may be forced to follow suit, removing the rationale for investors to stick with an indebted industry in long-term decline.

Just in time for Earth Day: Oil’s epic crash

“Cutting dividends signals to investors the business-as-usual growth strategy is no longer working,” CarbonTracker’s Mike Coffin told ImpactAlpha

Value over volume

Oil companies have two possible strategies: harvesting existing assets or transitioning to renewable sources of energy says Coffin. . “Even under stable business conditions, management should be incentivised to create value, rather than growing production simply to get bigger,” Coffin recently wrote. In the face of a global oil glut, “the need for a value focus is magnified.” 

Net-zero pledges by BP’s new chief raise the stakes for oil majors

Aligning incentives

Executive pay incentives that reward ever-more production of oil and gas are outdated. All but four of the 30 global oil companies (Diamondback Energy, Equinor, OMV and Origin Energy) analyzed by CarbonTracker had growth metrics, such as production or reserves replacement, in their 2019 incentive structures. That’s starting to change: BP has removed direct growth metrics as part of its pledge to be net-zero by 2050, while a significant portion of Repsol executives’ pay will be linked to decarbonization and sustainability, says Coffin. 

Agent of Impact: Josu Jon Imaz, Repsol

AGM season

Exxon, Chevron and BP hold their annual shareholder meetings on May 27, where they will face shareholder pressure to detail their climate targets and plans. Aligning pay incentives with decarbonization plans “is the next phase,” says Coffin. Another closely watched resolution: The Church of England and The New York State Common Fund are looking to eject the entire Exxon board for the second year in a row.

You might also like...