How scaling back on climate targets is impacting commerce. By Colin Gault, head of product, POWWR
Much was made of the big energy companies scaling back their climate targets earlier this year as their profits hit record highs. For many, these scale-backs were disappointing given the increasing global focus on decarbonization. However, these decisions were influenced by a combination of factors.
A global pandemic, geopolitical tensions in Europe, and double-digit inflation were not foreseen when these companies first laid out their climate strategies. Even the most optimistic observers must have understood at the time that some adjustments were inevitable.
A moving of the goal posts
At times of economic uncertainty, there typically follows a prioritization of the short-term over the long-term goals. Whilst we have seen this with the energy companies, what has been clear is that investment in oil and gas is going up, not down.
What we have seen happen with energy prices has re-invigorated the belief that there is still a long-term need for oil and gas, and most definitely a short-term opportunity. Given that oil and gas remain the core business of the major energy companies and will likely remain so for many years to come, they are only doing what any business would do when demand for its product goes up. Unfortunately, the knock-on effect is for the pathway to net zero to lower in priority. For now, at least.
A steeper trajectory will be required
Because of this, the trajectory to net zero for oil and gas companies will now have to be much steeper between 2030 and 2050 than previously thought if they are to reach the goals they previously set themselves.
The move will also, of course, impact cumulative global emissions, making it far more difficult to meet the Paris Agreement that was adopted by 196 Parties at the UN Climate Change Conference (COP21) in 2015 to aim to ‘limit the temperature increase to 1.5°C above pre-industrial levels.’
Scaling back on climate targets will also have a knock-on impact for those organizations that currently use oil and gas in their supply chain. If there are fewer low carbon energy alternatives, they will find it more challenging to decarbonize their own businesses.
The need to strike a balance
The ramifications of scaling back on climate targets run deep. It could impact investor confidence and the ability to attract capital for future green investments. It could also do untold damage to a brand. This is because consumers are increasingly looking for the companies they buy from to have traceable – and ethical – supply chains. So much so, that a recent study showed that organizations seen as environmental, social, and governance (ESG) leaders are 43 percent more likely to outperform similar organization in terms of profitability.
I think moving forward, energy companies will need to strike a balance between ambitious climate targets and realistic action plans that are financially viable. Whilst a more pragmatic approach in the future may be required, it will remain important for them convince investors, employees, consumers, and other stakeholders that they remain committed to playing their part in achieving net zero.
Rise of the climate change champions
Considering how central the energy sector is to global commerce, the impact of their reduced ambition will be that emissions will now stay higher for longer. Not only from the direct emissions attributed to these companies, but from the continued rate of consumption of their products. Wider global decarbonization goals are fully dependent on the energy sector. That goal is put at risk when the energy sector itself dials back their ambitions to transition away from fossil fuels.
By reducing ambition and continuing to invest in fossil fuels as opposed to low carbon alternatives we could unfortunately see a slowing down of the global effort to decarbonize. These are worrying times. These companies have a lot of influence and the messages this sends out could be picked up by other industries as an indication that they too should alter their commitments to net zero.
However, it is not all bad. There are still many energy companies fully committed to net zero who are developing renewable energy and low carbon technology. They could, in fact, be the real winners as the scaling back of others presents an opportunity for them to differentiate themselves as a climate change champion.
Colin Gault is head of product at POWWR. POWWR helps you sell and manage energy more efficiently by providing advanced platforms and simple solutions for both suppliers and brokers. In fact, we provide the only end-to-end connected journey for energy sales.
www.powwr.com