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How should fossil fuel companies like ExxonMobil, Shell, and Saudi Aramco respond to the alarming rise in global temperatures, unprecedented heatwaves, rainstorms, and devastating wildfires occurring worldwide?
For companies whose primary source of revenue comes from fossil fuels – oil, gas, and coal, which are major contributors to global warming – this question is more critical than ever.
The answers are not simple. While oil and gas companies may not directly sell coal, the dirtiest fossil fuel, they face increasing pressure to transform their business models towards cleaner alternatives, without alienating owners or shareholders who resist such changes.
Investors have historically been attracted to the financial returns offered by the fossil fuel industry, supported in part by organizations like Opec, which can stabilize prices in challenging market conditions.
However, the future is uncertain. The International Energy Agency predicts a potential peak in global oil demand before the end of this decade, driven by the explosive growth of electric car sales and unexpected technological advancements.
Oil company leaders can draw lessons from the past, such as the incomprehensible growth of cell phones, to convince shareholders of the necessity to shift. Unfortunately, many industry leaders continue to resist change.
Some CEOs of major oil companies have lobbied against emission reductions, claiming they would disproportionately impact the world’s poorest populations. Their arguments, however, fail to acknowledge the devastation caused by climate change, such as intensified floods in countries like Pakistan.
Contrasting with these attitudes, companies like BP have displayed a greater commitment to addressing climate change. While BP may have reduced the pace of lowering oil and gas output, it has pledged a larger reduction than most competitors and is actively investing in renewable energy projects.
However, greater action is needed. There is a strong case for oil majors to split their businesses into separate green and fossil fuel entities, highlighting the value of green ventures. Additionally, companies should take stronger measures to prevent methane leaks, a potent greenhouse gas.
Nevertheless, it is unrealistic to expect the fossil fuel industry to single-handedly solve a crisis caused by fossil fuels. Governments play a crucial role in reducing demand for these fuels, and their efforts have only just begun.
While coal’s share of G20 countries’ electricity has decreased, driven by increasing wind and solar power adoption, further action is needed to promote electric cars and heat pumps, making them more affordable and accessible, which requires government support.
This may appear politically challenging, but so does the prospect of life in a world where climate change has disrupted the climate system in unanticipated ways.
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Climate Capital
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