Climate crisis: How large firms are feeling the heat over carbon

Though under threat themselves, many businesses are still in denial – ploughing billions into new gas and oil production, writes Ben Chapman

Fossil fuel giants may become climate victims if they don’t adapt (Getty)

Pressure is building quickly on the world’s biggest polluters – but they have yet to show they grasp the immediacy of the climate emergency.

Research has forecast that policies to tackle the climate crisis could slash the value of the 100 most carbon-intensive companies – oil drillers, coal miners and others – by £1 trillion in just a few years.

It is no longer only climate activists and concerned citizens who are calling for such policies. A group of the world’s biggest investors, managing some $37 trillion (£28 trillion) of assets, is calling on governments to bring in much stricter climate change regulation.

Firms including Aviva and Zurich, which invest the savings of millions of people, are demanding an end to thermal coal power plants worldwide and the introduction of a “meaningful” price on carbon.

They want an end to fossil fuel subsidies and for governments to increase planned emissions cuts beyond what has already been pledged. This is not out of a sense of moral duty but a cold calculation about the financial risk that climate change presents.

The kind of changes they are proposing are ones that would have a real impact on the climate change fight, and also on the bottom lines of fossil fuel firms.

Many companies have received the message that they need to rapidly adapt their business models or will face extinction. But their actions remain underwhelming at best.

So far, fossil fuel producers have proved more adept at presenting an image that they are taking the climate crisis seriously than actually undertaking any meaningful change.

BP is a case in point, though it is far from alone. The oil giant faces a complaint from environmental lawyers over its greenwashing advertising blitz which represents gas as a clean energy source and gives an impression that renewables are a significant part of its business.

The truth is that, despite their public projections and promises to do more, all of the major oil companies still invest an infinitesimal fraction of their vast capital budgets in green energy.

There is a simple reason for this: green energy remains, for the time being at least, less profitable than pumping fossil fuels out of the ground.

The oil giants also have a huge advantage in their sector which they don’t necessarily enjoy in the brave new green world of clean energy – knowledge. Oil and gas production is highly capital-intensive and the planet’s available reserves require ever-more ingenuity to extract. The required expertise is held by a small number of companies.

Far from cutting back, the big oil companies plan to invest $846bn in new oil and gas production by 2025, with Shell leading the way.

Shell boss Ben van Beurden recently said he had “no choice” but to invest in long-term fossil fuel projects and that it was “entirely legitimate” to do so, given that demand will remain strong for decades to come.

But the predictions of many carbon-intensive companies appear to be based on the fallacy that the invisible hand of the market will largely fix the climate problem, perhaps guided a little by governments. The assumption seems to be that fossil fuel demand will gradually reduce over time and supply can drift down with it.

They tend to ignore, or at least minimise, the prospect that new legislation may force them to rapidly cut their carbon emissions.

“One of the bigger risks is not so much that we will become dinosaurs because we are still investing in oil and gas when there is no need for it any more,” van Beurden told Reuters. “A bigger risk is prematurely turning your back on oil and gas.”

That no doubt sounds like an entirely rational statement to an oil executive, focused on delivering short-term profits and healthy dividends every quarter. To many other observers it sounds like madness.

It is understandable that companies such as Shell focus on metrics of share prices, return on capital and net profit, rather than environmental damage.

But unless they realise very soon the pace of decarbonisation that is required, and the part they must play, then even by their own chosen measures they are likely to fail sooner than they think.