Opinion: Giant leap

European oil firms are responding to investors' climate concerns, but agreeing a sustainable path requires wider dialogue

Opponents of the oil and gas sector say there is no room for fossil fuels in a lower-carbon future while the industry lacks a coherent response to the challenge of climate change. "The frustration from my side is that we agree on much more than people realise," BP chief executive Bob Dudley says. "Like our critics, BP believes the world is not on a sustainable path. Like our critics, we also support a rapid transition to a lower-carbon future." The energy industry needs as much certainty as possible when planning its long-term investment strategy. "If dithering and delay today lead to an abrupt, precipitous course correction tomorrow, that could be highly disruptive for business and the world economy," Dudley says.

Most European oil companies now recognise the need to include climate-related metrics and targets in management and investment plans. BP's board recently supported a binding resolution filed on behalf of investor group Climate Action 100+ requiring it to set out a business strategy consistent with the goals of the Paris agreement on climate change. And Shell is implementing recommendations from the Task Force on Climate-related Financial Disclosures (TCFD).

But US companies are less willing to engage with their critics. ExxonMobil successfully petitioned US securities regulator the SEC to prevent a vote at its AGM on a shareholder motion calling for the firm to set greenhouse gas emissions reduction targets aligned with the Paris climate agreement. Financial services firm Legal and General recently sold shares in a number of US oil companies — including ExxonMobil — that it deemed "climate change laggards".

European oil and gas companies are far ahead of most of their US counterparts in responding to investor calls for climate action, according to a new survey on corporate governance and strategy by investor research group Transition Pathway Initiative (TPI) that covers 274 large firms in 14 sectors of the economy accounting for 41pc of emissions from publicly listed companies worldwide. Fear of litigation is one obstacle preventing progress, especially in the US.

Legal action by communities, consumers and investors claiming climate-related damages from oil companies is becoming more common, although none has yet succeeded. Dudley says this threat leaves BP reluctant to report the implications of Paris-compliant scenarios as recommended by the TCFD. As a prominent US class-action lawyer told him: "Whatever scenario you have will be wrong in a year or two, and we are going to sue you for misleading investors."

Small steps

Many oil firms are taking small steps into renewable energy, but most of their investment is still in the oil and gas resources that offer the returns shareholders expect. Yet Dudley argues that the industry can play a transformational role in creating a low-carbon future without facing stranded assets. "We can turn the ship faster than people think," he says. But agreeing the right course presents the bigger test. "The challenges facing the world are too serious to polarise the debate and demonise one another," he says. Constructive dialogue between consumers, corporations, governments, activists and investors will be essential. On the 50th anniversary of the first moon landing, it should not take a giant leap of imagination to recognise the achievements of focused, collaborative action.