By Andrew Adie
If you’re an oil major then you’re probably not expecting to get a lot of Christmas cards this year.
Divesting from ‘Big Oil’ is the mantra for many activists and ESG focused investors. However, I think we need to be careful what we wish for in this approach.
We may not like it, but we need the oil majors. We can already see the damage that is done to the global economy when gas hits a supply issue. We need the oil majors to continue producing in the transition period or the global economy grinds to a halt, and that means they need continued investment.
Equally, we should be focused on the fact that some of these global petrochemical companies will, by 2050, have transitioned to become the world’s largest renewable energy companies. They are part of the solution as well as being part of the problem.
Meeting the huge challenges of getting to a net zero economy is going to need big multi-national companies like the oil majors with the resources and expertise to sort out aviation, shipping, industrial emissions and the rest.
I’m not saying that I believe the oil majors are paragons of virtue, far from it. I think there are many skeletons in the closet around environmental impact, ethical development, pay and conditions that will not make comfortable reading. Yet divesting from ‘Big Oil’ and criticising the industry while continuing to live in a world powered by gas, petrol and awash with plastic isn’t entirely free from hypocrisy.
‘Big Oil’ clearly has to change but it’s not just down to the oil majors, it’s also down to all of us to wean ourselves off the black gold, to decarbonise and to cut our use of plastics.
When looked at through that lens, I’d be far more comfortable knowing that the oil majors are continuing to attract funding from investors that have ESG at the heart of their approach and which act as stewards of capital and hold the oil majors’ feet to the fire when it comes to transitioning. If they can’t attract funding from ESG-focused investors then they will get it from other sources; private investors, sovereign wealth funds and other organisations that are more focused on returns that they are on ESG and impact.
Indeed, the FT ran a story earlier this month commenting that hedge funds have been buying up shares in oil majors that are being sold off by institutional investors on ESG grounds.
As we approach COP26 we are bound to see a wave of protests focused on ‘Big Oil’ as a headline grabbing shorthand for the damage wrecked on the planet. Yet we’re all to blame for ‘Big Oil’. We’ve all created and fuelled a market and we’re all on a transition to a renewable, decarbonised future.
Once the talking is done at COP26 and we, hopefully, have new agreements on carbon reductions, it would be good if our views on the world are driven by a pragmatic need for us all to work together to drive change, rather than embarking a blame game that may deliver a different outcome to the one that we’d really like.