Bp's profits have halved - can they really become a sustainable oil provider?

On February 12, 2020, BP’s then CEO Bernard Looney announced the company’s ambition to become a sustainable business.

The oil giant would aim to for net zero by 2050. But over the last few years there has been growing pressure from shareholders to abandon it’s green commitments and increase production of fossil fuels

Today (February 6), BP reported profits halved last year to nearly $14bn (£11bn); they were better than expected after weaker oil and gas market prices caused revenues to slump across the industry.

In a statement, BP said it would return more cash to investors with $3.5 billion of share buybacks over the first half of this year, and at least $14 billion over the next two years.

The move prompted criticism from campaigners who said the money would be better spent on investing in the green transition.

Although the company beat expectations, its full-year profits were down sharply compared with 2022, when soaring global energy market prices helped BP to a full-year profit of $28bn.

BP’s Sustainability Strategy

Despite criticism, BP has maintained its commitment to transforming from an integrated oil company to an energy company.

In 2017, BP made a strategic move towards renewable energy by acquiring a 43% stake in Lightsource, a leading developer of solar power and battery storage.

This acquisition marked a significant shift in BP’s business model, signaling its commitment to transition away from fossil fuels. By 2019, BP had increased its stake in Lightsource to almost 50%, further solidifying its position in the renewable energy sector.

Lightsource BP has since developed 8.4GW of solar power capacity and has more than 55GW of projects in the pipeline.

But it was in 2020 when it made it’s concrete commitment to net zero. The company has committed to reducing its greenhouse gas emissions by 35% from 1990 levels by 2030.

To achieve this goal, BP has been improving its legislative and institutional environment to promote the renewable sector. The company has initiated renewable energy projects with multilateral and bilateral groups, as well as the private sector.

BP’s new CEO, Murray Auchincloss, has pledged to continue this strategy, stating that the company is “committed to growing long-term valuefor our shareholders.”

The Challenges Ahead

While BP’s commitment to sustainability is clear, the company faces significant challenges. The tension between the need for profitability and the ethical considerations of environmental impact is a major hurdle.

Additionally, the company must navigate the expectations of shareholders, some of whom prioritize immediate financial returns over long-term sustainability.

Recently, BP has faced pressure from activist hedge fund Bluebell Capital Partners, which argues that BP’s strategy has depressed its share price and presumes a drastic decline in oil and gas demand, which they consider unrealistic.

Furthermore, BP’s transition to a more sustainable business model requires significant investment in new technologies and infrastructure. This is a costly endeavor, and it remains to be seen whether BP’s current financial strategy can support this transition.

The company’s decision to prioritize shareholders over investing in the green transition has been criticized, with some arguing that this short-term focus could hinder BP’s long-term sustainability goals.