One of the challenges of writing Both of These Things Are True is that the prescriptions for the new realities facing energy companies require such bold action. As a believer in incremental progress myself, I am eager to map a path for North American energy companies that has more than a snowball’s chance of getting implemented.
Both of these things are true:
- Most oil and gas companies continue to operate traditional businesses, often at great scale.
- The international majors are reinventing themselves as energy companies of the future.
problem path forward:
While most oil and gas companies continue to operate in a business-as-usual fashion, international majors are responding to investor and public pressure in a way that is both showing the way and moving the bar for your company.
Further, they provide cover for you. Addressing public pressure — particularly in the context of climate and carbon can throw you right into the fray of climate politics. Fortunately, if ExxonMobil can address climate and carbon, so can you.
Equinor has made the greatest branding overhaul, starting with their name change from Statoil. When I first heard of its new identity, I thought Equinor was caving in to the “beyond fossils” narrative. Now I understand it was ahead of the curve, in no small part because anti-fossil tension is stronger in northern and western Europe (Equinor is headquartered in Norway).
While no other international major has changed its name, many are carving out some broad paths to rebranding as energy companies of the future, which become accessible at different scales. These paths provide route options for your company.
- Investments in new technology. The Oil and Gas Climate Change Initiative is a CEO-led initiative that has invested $6.3 billion in low-carbon technologies and low carbon research and development. Companies that have signed on include BP, Chevron, Equinor, ExxonMobil, and Shell. (P.S. U.S. large independent Occidental Petroleum is also participating.)
- Decarbonizing commitments. Shell was the first company to set a three-year target to reduce its net carbon footprint by 2 to 3 percent compared to 2016. Notably – this target includes the footprint of its products. Shell also committed to setting new targets annually, and have linked this effort to executive pay. (Shell was targeted by a group of investors who bought its stock to drive net carbon zero efforts. Foreshadowing: red alert!)
- Policy commitments. The Climate Leadership Council is an international policy institute promoting a carbon dividends framework as the most sensible climate solution. Founding members include BP, ConocoPhillips, ExxonMobil, Shell, and Total.
- Distancing themselves from combative organizations. Shell, ExxonMobil, and BP have left the American Legislative Exchange Council over its position on climate change. In April of this year, Shell responded to investor pressure by publishing a review of its industry trade associations. As a result, Shell also announced it would leave the American Fuel & Petrochemical Manufacturers (AFPM) in 2020.
- Willingness to talk about climate. Increasingly, international majors are talking about climate change conversantly and with regards to all their business operations. Climate is not your environmental team’s problem anymore. One succinct example can be found on Chevron’s website: We proactively consider climate change in our business decisions.
It matters because:
If your company doesn’t get into a fast-following mindset, your company will be the weak deer running behind the herd. While companies may be evolving just for the thrill of it, at our firm we track each of the changes identified above as an appropriate response to a relevant risk. You have some cover from the herd, but for how long?
The critical mistake companies are making:
- Doubling down on combativeness around climate instead of assessing the real and growing social risks created by public concern and attention.
- Poo-pooing the leadership of the international majors as caving to external pressure.
Seize the day. Successful companies will:
- Analyze the financial pressure risks discussed in the first What to Watch: Financial Pressures series.
- Develop a philosophical position about your company’s role in the energy future, rooted in the company’s history and values and looking to the future.
- Keep reading this series, because we will look at the efforts of the international majors and forward-thinking independents in the next five installments of the What to Watch: Majors series.
Fast following may or may not be visionary for your company. That really depends on whether you are getting ahead of public pressure, or responding with too little, too late. I’d like to hear how your company is thinking about the energy future. Send me a note and tell me about it.
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