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In July 2000, BP chief executive John Browne unveiled a rebranding of the oil and gas group, featuring a green and gold sunflower logo and the tagline “Beyond Petroleum”.
Campaign, the ad industry bible, thought it something of a joke. It mocked Browne’s claim that the design’s “radiance is a daily reminder of our aspirations and purpose” by noting its resemblance to the motif on Flora margarine tubs. Greenpeace, the environmental campaign group, thought it a joke, too — of the unfunny kind. It reckoned the money spent on the rebrand — reported to be £136mn — was more than BP had invested in renewable energy projects in the entire previous year.
Browne later accepted that, in suggesting BP was beyond petroleum, he had “pushed too far”. But, almost a quarter of a century later — a period that included 18 of the 19 hottest years on record — can the company’s more modest aim of cutting oil and gas production by 25 per cent between 2019 and 2030 really be “too far”, too fast?
Some BP shareholders seem to think so. Last week, they told the Financial Times that they expected targets would be further softened (its original plan was a 40 per cent cut) to help boost returns. One investor said he would “not be surprised if [BP] decided they had been too ambitious”, and opted to “not cut oil and gas production as much as they initially said”.
Supporters of BP’s climate efforts point out that it is the only oil major to say it will cut production and that carbon emissions from its own operations and its wider supply chain are both falling well ahead of schedule.
Still, shareholders are clearly worried that hitting climate targets means missing out. At rival oil producer Shell, advisory group ISS has recommended that investors vote against an AGM resolution, put forward by a climate campaign group, that the company should align its targets with the 2015 Paris agreement.
Are there real reasons to believe climate targets depress shareholder returns, though? An FT research project offers some insights.
For the past three years, we have identified companies in Europe that are trying to hit climate targets through verified reductions in their Scope 1 (from operations) and Scope 2 (from energy used) emissions. We then rank them by their change in emissions intensity: tonnes of emissions of CO₂-equivalent per €1mn of revenue. It cannot give a complete picture, as disclosure on Scope 3 emissions (produced in the wider supply chain, for example, when a product is used by consumers) is still patchy. But it does highlight companies that are spending and investing, rather than just pledging and deferring.
In the latest ranking, based on 2017-2022 disclosures, there are 138 UK companies among the top 500 emission cutters across the continent. Of these, 119 are London listed. So, by assessing their five-year share price performance from 2019, it is possible to gauge the lagged impact on returns of tough climate targets. That impact is negligible.
On average, the five-year shareholder return from the 119 top emission cutters is 15.5 per cent, compared with a five-year return from the FTSE All-Share index of 14.8 per cent. Of course, a comparison of an unweighted average of 119 individual shares with a market-capitalisation weighted index is not like-for-like. So, what about the proportion of outperforming shares?
Out of the 10 largest emission cutters, seven outperform the All-Share. Of the top 50, 25 beat the index. Among these are many companies from emission-intensive sectors: builders Berkeley and Morgan Sindall; aerospace group BAE Systems; outsourcers Mitie and Serco; and transport operator FirstGroup.
Shareholders voting at AGMs, or voting with their feet in the market against emissions cuts, might also take their lead from a wider electorate. In the recent UK mayoral elections, the promise of jobs and investment in renewable energy and battery factories won over voters in Teeside and the West Midlands, respectively. In London, incumbent Sadiq Khan, who championed an ultra low traffic emissions zone, convincingly beat his main opponent Susan Hall, who pledged to scrap parts of it. ‘You win some, Ulez some,’ one FT commentator remarked. When it comes to backing low-emission companies, though, the odds look slightly better.