How investors pushed BP to become a climate leader

Investor power was a critical factor behind BP setting one of the most ambitious climate strategies of any oil major.

engineer on solar windfarm

Given that oil and gas producers are among the biggest emitters of harmful greenhouse gases, asset managers are often asked why they don’t divest their holdings immediately to demonstrate their own commitment to addressing the climate change.

Yet while the ultimate sanction of divestment may be necessary, we believe a long-term engagement strategy with a company is usually far more effective. Any sceptics to that approach would do well to look at BP’s journey towards becoming a sector leader on climate.

The background to BP?

  • We have been engaging with BP for many years, but the big breakthrough came in 2019 where we helped it develop a new climate strategy, which received 99 per cent approval from shareholders.
  • Subsequently, BP appointed a new CEO (Bernard Looney) in 2020 and he announced an ambitious plan to hit net zero emissions by 2050, necessitating a fundamental change to BP’s business model.
  • To put this into perspective, if BP successfully hits its ambition of net zero emissions, this will wipe out the equivalent annual carbon footprint of the UK and Ireland combined!
  • As such, this is hugely important to help address the climate crisis.

What’s the update?

  • Since the announcement, we have continued to meet BP regularly to monitor and help it execute on its climate plan.
  • BP recently published a detailed roadmap with shorter-term milestones to hit by 2025 and 2030 on capital allocations and carbon reductions, including:
    • Selling off £25 billion of high-carbon projects by 2025.
    • Reducing oil and gas production by 40 per cent by 2030.
    • Ten-fold increase in renewable investment by 2030.

Any clear evidence of it executing on the plan?

  • The early signs are very encouraging that BP is following through on its commitments:
    • In June 2020, it disposed its petrochemical business for $5 billion and in February 2021 disposed of a c.$3 billion stake in a gas business.
    • BP partnered with Equinor on a $1 billion offshore windfarm in the US in late 2020, and in Feb 2021 announced an investment of almost $1.5 billion in the development of two windfarm projects in the Irish Sea (about 30km off the coast of Whales).

What next?

  • BP’s commitment has catapulted it to industry leader status in terms of its climate ambition.
  • BP’s global reach, considerable engineering and project management expertise, as well as insights into all corners of the energy system, will benefit the company on its net-zero journey.
  • That said, the transition to net zero is not an easy task. BP needs to execute well on disposals and invest in renewables in a very competitive market.
  • We will continue to work with and monitor BP’s progress in executing on its ambitious plan.

As mentioned in our recent communications, we are working closely with 30 of the world’s 30 largest carbon-emitting companies in the oil and gas, metals and mining, and utilities sectors to drive them towards similar change.

Key risks

Investment risk

The value of an investment and any income from it can go down as well as up and can fluctuate in response to changes in currency and exchange rates. Investors may not get back the original amount invested.

 

Derivative risks

Investments can be made in derivatives, which can be complex and highly volatile. Derivatives may not perform as expected, meaning significant losses may be incurred.

 

Emerging market risk

Investments can be made in emerging markets. These markets may be volatile and carry higher risk than developed markets.

 

Important information

Except where stated as otherwise, the source of all information is Aviva Investors Global Services Limited ("Aviva Investors"). Unless stated otherwise any opinions expressed are those of Aviva Investors. They should not be viewed as indicating any guarantee of return from an investment managed by Aviva Investors nor as advice of any nature.

The value of an investment and any income from it can go down as well as up. Investors may not get back the original amount invested.

The Aviva Investors Multi‐asset Funds comprise two ranges, each with five funds (together the “Funds”):

Aviva Investors Multi-asset Plus Fund range comprises the Aviva Investors Multi‐ asset Plus Fund I (“MAF Plus I”), the Aviva Investors Multi‐asset Fund Plus II (“MAF Plus II”), the Aviva Investors Multi‐asset Plus Fund III (“MAF Plus III”), the Aviva Investors Multi‐asset Plus Fund IV (“MAF Plus IV”) and the Aviva Investors Multi‐asset Plus Fund V (“MAF Plus V”)

Aviva Investors Multi-asset Core Fund range comprises  the Aviva Investors Multi‐ asset Core Fund I (“MAF Core I”), the Aviva Investors Multi‐asset Fund Core II (“MAF Core II”), the Aviva Investors Multi‐asset Core Fund III (“MAF Core III”), the Aviva Investors Multi‐asset Core Fund IV (“MAF Core IV”) and the Aviva Investors Multi‐asset Core Fund V (“MAF Core V”)

The Funds are sub‐funds of the Aviva Investors Portfolio Funds ICVC. For further information please read the latest Key Investor Information Document and Supplementary Information Document. The Prospectus and the annual and interim reports are also available on request. Copies in English can be obtained free of charge from Aviva Investors UK Fund Services Limited, St Helen’s, 1 Undershaft, London EC3P 3DQ. You can also download copies from our website.

Issued by Aviva Investors UK Fund Services Limited. Registered in England No 1973412. Authorised and regulated by the Financial Conduct Authority. Firm Reference No. 119310. Registered address: St. Helen's, 1 Undershaft, London, EC3P 3DQ. An Aviva company.

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