Colin Gault, head of product at POWWR, discusses how businesses scaling back their climate targets will impact the rise in global carbon emissions and hinder the path to net zero.
Much was made of the likes of BP, Shell, and Suncor scaling back their climate targets earlier this year as their profits hit record highs. BP’s profits alone more than doubled to $27.7bn (£23bn) in 2022, as energy prices soared due to geopolitical tensions and record temperatures.
These scale-backs were disappointing for many, given the increasing global focus on decarbonisation. Yet, these decisions were influenced by a combination of factors. A perfect climate storm, some might say.
Adjustments to climate targets were inevitable
A global pandemic, a war in Europe, and double-digit inflation were not foreseen when these companies initially set their climate targets and laid out their strategies. Even the most optimistic observers understood that some adjustments were inevitable.
After all, in times of economic uncertainty, there typically follows a prioritisation of the short-term over the long-term goals. What is certain, though, is that investment in oil and gas is going up, not down.
What we have seen happen with energy prices has re-invigorated the belief that there is still a long-term need for oil and gas and, most definitely, a short-term opportunity. Given that it is still the core business of these companies and will remain so for many years, they are doing what any business is expected to do when demand for its product goes up.
Unfortunately, the impact is that achieving net zero sooner rather than later has lowered in priority. For now, at least.
The path to net zero will be hindered
With the scaling back of climate targets, the pace and extent of the transformation towards net zero will undoubtedly be hindered. On this evidence, the trajectory to net zero for oil and gas companies will now have to be much steeper between 2030 and 2050. This makes it far more challenging to reach the goals they previously set themselves.
The move will also, of course, impact cumulative global emissions, making it far more challenging to meet the Paris Agreement that was adopted by 196 Parties at the UN Climate Change Conference (COP21) in 2015 to aim to ‘limit the temperature increase to 1.5°C above pre-industrial levels’.
Scaling back on climate targets will also have a knock-on impact on those that produce oil and gas products and those that use them in their supply chain. If fewer low-carbon energy alternatives exist, they will find it more challenging to decarbonise their business in line with their targets.
Having strong environmental credentials is imperative
A lack of commitment towards sustainability will potentially impact investor confidence and the ability to attract capital for future green investments. It could also do untold damage to a brand.
This is because consumers are increasingly looking for the businesses they buy from to have traceable – and ethical – supply chains. Interestingly, a recent study showed that organisations seen as environmental, social, and governance (ESG) leaders are 43% more likely to outperform similar organisations in terms of profitability.
Having strong environmental credentials is no longer just a ‘nice to have’ for businesses; it is imperative.
Energy companies need to strike a balance between ambitious climate targets and realistic action plans that are financially viable.
It is important to remember that scaling back on climate targets does not indicate a complete abandonment of sustainability efforts. It may simply reflect a more pragmatic approach to ensure a successful and orderly transition. But it is up to those companies to convince their investors, employees, consumers, and other stakeholders that they can be counted on to play their part in achieving net zero.
Worrying times
Considering how central the energy sector is to global commerce, the impact of their reduced ambition will, unfortunately, be that emissions will now stay higher for longer.
Not only from the direct emissions attributed to these companies but from the continued consumption rate of their products. Wider global decarbonisation goals are entirely dependent on the energy sector. After all, sustainability goals being set by organisations across all industry sectors are reliant on their ability to be able to decarbonise their energy consumption.
That goal is put at risk when the energy sector itself dials back its ambitions to transition away from fossil fuels.
By reducing climate targets and continuing to invest in fossil fuels instead of low-carbon alternatives, we could unfortunately see a slowing down of the global effort to decarbonise. These are worrying times. These companies have a lot of influence, and other industries could pick up the messages this sends out to indicate that they, too, should alter their commitments to net zero.
However, it is not all bad. Many energy companies fully committed to net zero are still developing renewable energy and low-carbon technology. They could be the real winners as the scaling back of others presents an opportunity for them to move even faster with less competition.
