Green Investment Cuts: Boosting Gas and Oil Sectors for Economic Growth

Getty Images BP is anticipated to announce a significant reduction in its renewable energy investments, opting instead to boost oil and gas production. The company will outline this strategy following pressure from some investors who are dissatisfied with the company’s lower-than-expected profits and share price compared to competitors.

This shift comes as Shell and Equinor have already scaled back their commitments to green energy projects. Additionally, President Donald Trump’s pro-fossil fuel rhetoric has fueled increased investment in oil and gas production while steering away from low-carbon initiatives.

Shareholders and environmental groups are expressing concerns about any potential increase in fossil fuel production. Five years ago, BP set ambitious targets among large oil companies to cut its oil and gas output by 40% by 2030 while significantly increasing renewable energy investments. In 2023, the company reduced this target to 25%, and it is now expected that they will abandon this goal altogether.

BP Chief Executive Murray Auchincloss has announced a “fundamental reset,” with plans to cut more than half of the company’s investment in renewable energy. This decision comes under pressure from shareholders, including influential activist group Elliot Management, which owns nearly £4 billion worth of BP stock to advocate for greater oil and gas investments.

In 2024, BP’s net income fell to $8.9 billion (£7.2 billion), a decline from the previous year’s $13.8 billion. Over the past five years since former Chief Executive Bernard Looney first outlined his strategy, shareholders have received total returns of 36%, including dividends, compared to Shell and Exxon’s 82% and 160% returns respectively.

BP’s underperformance has sparked speculation about potential takeover targets or a move to list its stock on the US market where oil and gas companies command higher valuations. However, not all shareholders support such drastic changes. A group of 48 investors recently petitioned BP for a vote on any plans to shift away from previous renewable commitments.

The environmental organization Greenpeace UK has warned that if BP doubles down on fossil fuels, it will face opposition from green campaigners as well as its own shareholders. Senior climate advisor Charlie Kronick added that government policies prioritizing renewable power and the need for extreme weather recovery funding could limit such a move by BP.

BP’s U-turn decision may be viewed unfavorably in the long term, according to Sir Ian Cheshire who has held executive roles at companies like B&Q owner Kingfisher and Barclays Bank. He noted that while government policies will favor renewables, extreme weather pressures on insurance models could lead policymakers to look for funding from fossil fuel profits.

AJ Bell analyst Russ Mould highlighted this as one of the most significant moments in BP’s last four or five years. Other energy companies have been more transparent about their intentions, and they need to demonstrate that they are committed to improvement rather than remaining stagnant.

BP has already divested its offshore wind business into a joint venture with Japanese company Jera and is seeking partners for similar deals in its solar business. The refocus on oil and gas production could also result in the sale of non-core businesses to reduce costs, as insiders have described it.

This shift may be dubbed “Back to Petroleum,” which some shareholders welcome while others are dismayed. Both BP and Elliot Management declined to comment at this time.