Is the BP Net-Zero Plan Actually Good for the Environment? | ESG Investing | Sustainable Finance

BP aims to be net-zero by 2050. British Petroleum recently announced a new green initiative, BP will spend more on clean energy and less on fossil fuels going forward. By 2050, BP aims to achieve net-zero greenhouse gas emissions, joining a growing list of governments and corporations committed to tackling climate change. Is the BP Net-Zero Plan actually good for the environment?

Welcome back to patrick boyle on finance today we’re going to talk about esg investing and bp’s net zero plan we’re going to discuss whether plans like this are actually good for the environment or just good marketing bernard looney bp’s new ceo announced back in february that bp would dramatically be shifting the way it does business going forward looney described

A transformation of bp structure and operations to steer the oil giant to spend more on clean energy and less on fossil fuels by 2050 he said bp would achieve net zero greenhouse gas emissions joining a growing list of governments and corporations committed to tackling climate change we have to change and change profoundly he told a room full of investors and

Journalists because the world is changing fast and so are society’s expectations of us but it’s more than having to change we want to change within three months total and royal dutch shell had announced their own plans to reach net zero emissions by 2050 building on previous pledges to increase spending on low carbon energy sources like wind solar and biofuels

The us super majors have been a lot quieter about this as they are currently under significantly less governmental pressure than their european peers will this new net zero strategy be more successful than the 2001 beyond petroleum rebrand for bp the decade that followed this rebrand brought the texas city refinery accident the thunder horse platform tilt troubled

Investments in russia’s oil sector and alaskan pipeline spill and of course the well-known deep water horizon spill which was a multi-billion dollar accident which bp is still paying for today a few weeks ago bp announced that they were having their dividend along with their biggest headline loss in a decade and yet its share price went up the dividend cut into

Losses were not really a surprise to investors and the investors seemed mainly to focus on bp’s plans to transition to cleaner energy the company set out a 10-year plan of action to reinvent itself this is one of the most significant strategic changes ever in the oil industry bp plans to be leaner more focused and it will dilute its fossil fuel earnings with more


Renewables while paying lower dividends this move is designed of course to appeal to esg investors esg means using environmental social and governance factors to screen or evaluate companies a range of sustainability and socially desirable metrics these factors are increasingly being integrated into the investment process bp is dealing with the virus pandemic’s

Impact on energy demand refining margins and its finances and it’s unclear what the longer term impact on the energy industry will be meanwhile bp’s ability to scale up cleaner energy businesses is unproven why would investors with a climate bend not turn to pure play clean energy companies with a strong track record in this space at the moment this shift might

Appeal to some investors hoping to see the world move away from fossil fuels but analysts point out that they should be prepared for lower margins oil majors generally target a 12 to 15 percent return on their investments in oil and bp has said that it’s aiming for a return of between 8 and 12 for renewables the biggest news is that bp is preparing to sell off a

Large chunk of its oil and gas assets and they aim to do this whether crude oil prices bounce back from the covet 19 crash or not they’re doing this because of their goal to invest in more renewable energy according to reuters even if crude prices do bounce back to 65 to 70 dollars a barrel bp is unlikely to put those assets back into its exploration plans and

Would instead use the better market conditions as an opportunity to sell them at a higher price major oil companies typically hold assets like these for the long term even when crew prices plunge with a view to bringing more marginal production online when market conditions improve this divestment strategy sheds light on how ceo bernard looney aims to reduce

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Bp’s oil and gas production by 40 percent or at least 1 million barrels per day by 2030. he explained that bp would continue to explore for a while near its current production infrastructure as those barrels would be low cost and would help boost bp’s cash flow which he plans to use to fund its transition to cleaner energy bp is yet to name the assets that it

Plans on selling but sources have told reuters that bp identified canadian oil sand assets and projects in deep water off angola as being uneconomical under its new oil price assumptions in addition analysts have suggested that bp might move out of azerbaijan oman the uae and iraq as these projects have low rates of return and high greenhouse gas emissions it’s

Worth noting that bp along with the other super major enp oil companies are held to a much higher standard than many of their smaller competitors and most national oil companies around the world the oil super majors have a long track record of imposing on themselves and their operating partners much higher safety and environmental standards they are the companies

That are willing to spend money on forcing their drilling contractors to use the best equipment and adopt the highest standards of safety and environmental standards so when we take this into account we have to wonder how environmentally friendly divesting these assets is the majority of the world’s energy is derived from fossil fuels and i’ll put a chart up

To show you that and while there has been significant growth from renewables over the last decade it would appear that it will be a long time before an environmentally friendly form of energy entirely replaces fossil fuels it’s worth noting that while renewables have been growing as you can see on the chart there’s been no real decline in the use of fossil

Fuels people are just really using more energy today than they did 50 years ago these divested assets won’t be set aside they’ll likely go on to be extracted by operators with significantly lower environmental standards than bp when bp sells these assets the price that they’ll be paid will be the present value of the expected future cash flows because that’s how

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Pretty much any asset is priced and so bp shareholders get to benefit from the sale of these assets at fair value right they’re going to sell them off at fair value the producer who can pay the most to buy them will likely be the producer who can extract the oil at the lowest possible cost and that might be done by skirting best practices in terms of health and

Safety and environmental practices once this is done esg investors may be able to run an analysis of bp and invest based upon the new green credentials but nothing positive will have really happened in aggregate for the environment and in fact it could be argued that it would be more environmentally friendly for bp to hold on to these oil assets and extract

Them in a responsible manner rather than just selling them off and not really knowing what happens afterwards so let me know in the comment section below what you think about this now on the other side of the coin bp will be taking the money that they raise from these sales and they’ll be using that to invest in sustainable energy projects so essentially they

Will be competing with the energy producers who buy these oil assets right so they’ll sell them an asset and then compete with them by creating energy in a different more environmentally friendly manner hopefully now maybe this huge investment will bring about breakthroughs that more than offset the impact of these assets being extracted by possibly unscrupulous

Operators there’s no really easy answer to the question of what the best possible path is for bp going forward in economics people often talk about the law of unintended consequences which is often used as a warning that an intervention in a complex system can sometimes bring about unanticipated and often undesirable outcomes as always feel free to comment below

And don’t forget to like and subscribe see you later bye

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Is the BP Net-Zero Plan Actually Good for the Environment? | ESG Investing | Sustainable Finance By Patrick Boyle

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