BP has been rowing back on renewables for years. So why was it helped by ‘net zero’ banks?

Last week, BP’s CEO Murray Auchincloss said his company had gone “too far, too fast” in its plan to transition away from fossil fuels. BP still says it aims to be a net zero company by 2050 but it will now take a different path to the one it set out in 2021 … doubling down on fossil fuels in the meantime.

Perhaps the move shouldn’t have come as a surprise. After all, BP is a commercial enterprise with a responsibility to deliver returns for its shareholders. And since Russia’s invasion of Ukraine, which led many countries to prioritise energy security over long-term sustainability, oil and gas have remained reliably lucrative.

What’s more, the company made a similar announcement two years ago, saying it would be ramping up its investments in oil and gas.

But if BP had indicated such a significant change in direction so long ago, how did it continue to raise billions from banks that said they’d only do business with “net zero” companies?

Milestone moment?

At the 2021 climate talks in Glasgow, a number of the world’s leading banks made landmark pledges: to slash the footprint of their own operations and, crucially, the emissions of their lending and investment portfolios.

It was hailed as a watershed moment. In theory, the vast stockpiles of money that had supported fossil fuel expansion would now be cut off for companies without net zero ambitions. The same year, the International Energy Agency warned that there must be no new oil and gas projects if the world is to reach net zero by 2050.

Yet throughout 2023, after it said it would invest significantly more in fossil fuels, BP raised more than $5bn with help from “net zero” banks including NatWest, HSBC and Barclays.

The deals illustrate a core problem with the banks’ net zero commitments. A key condition for companies they agreed to do business with was the existence of a “credible” transition plan. But it wasn’t always clear how the banks were assessing that credibility.

Even before Auchincloss’ announcement last week, the world-leading Grantham Research Institute assessed the credibility of oil and gas companies’ transition plans – and found that BP’s fell well short.

That lack of clarity on what was “credible” left the banks with enough wriggle room to maintain relationships with huge fossil fuel companies.

And those relationships have proved profitable. Since May 2021, global banks that have committed to net zero have poured almost $1 trillion into companies pursuing expansion of oil and gas projects that would push the world beyond its survivable limits.

Looking long-term

The policy environment has changed since Glasgow, when both fossil fuel companies and banks launched net zero targets. BP is not the only company of its kind to have “reset” its core business to oil and gas. But critics say that recent moves to boost fossil fuels and ensure quick returns are alarmingly short-sighted.

In the UK, the costs of getting to net zero are cheaper than was anticipated just five years ago, according to a recent report by the Climate Change Committee. And in a low-carbon economy, fossil fuels could nosedive – leaving the oil and gas fields currently in development as “stranded assets” with little value.

But crucially, the banks face considerable risks too. Their previous promises to work only with clients committed to the transition were made for a reason: they were feeling the pressure from climate-conscious investors.

If the banks are found to have broken these promises, they could well be held to account by regulators – not to mention see their credibility shattered in the eyes of their investors.