British multinational oil and gas company BP’s recent annoucement to cut renewables and ramp up fossil fuel spending has sparked mixed reactions, as investors weigh short-term gains against long-term sustainability risks.
Responding to pressure from investors, BP will now allocate $10bn (£7.9bn) annually to fossil fuels, a 20% increase, while slashing more than $5bn (£3.9bn) from its renewables budget. Investments in renewables will drop to just $1bn-$2bn (£790m-£1.58bn) per year, with less than half of that sum directed towards low-carbon energy projects. In contrast, the majority—70%—of BP’s expanded fossil fuel budget will go toward oil, with 30% dedicated to gas projects.
BP plans to launch new “major” oil and gas projects by the end of 2027, with another eight to ten projects beginning by the close of the decade. Alongside this expansion, it will maintain “selective” investments in biogas, biofuels, and electric vehicle charging while forming “capital-light partnerships” in wind and solar.
Lindsey Stewart, director of stewardship research and policy at data provider Morningstar Sustainalytics, described BP’s latest move as “shocking but not surprising.” He explained: “BP’s decision to reduce capital expenditure on renewables and double down on its fossil fuel assets will be shocking but not surprising to investors focused on sustainability. Having already cut back its energy transition targets in 2023, BP’s subsequent underperformance compared with peers has created pressure for BP management to focus on sustainability of a financial rather than ecological nature.”
The shift is expected to trigger pushback from environmentally focused investors, according to Stewart, who noted that previous cuts to BP’s climate commitments resulted in shareholder dissent. “Several of BP’s shareholders decided to vote against the company’s chair the last time BP reduced its commitment to energy transition, after not being offered the opportunity to vote on the company’s adjusted strategy. That’s a possibility again this year unless BP decides to table a ‘say-on-climate’ vote at its upcoming AGM, as 48 investors have already requested,” added Stewart.
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Following news last year that BP is set to abandon targets to cut oil and gas production by the end of the decade, Seb Beloe, partner and head of research at Wheb Asset Management, had shared that the decision to drop fossil fuel reduction targets is driven by market conditions. “The challenging reality is that BP’s mooted decision…is driven by current market signals,” he explained, citing high oil prices and clean tech slowdowns. Wind and solar projects face delays, and the electric vehicle market outside China is slowing.
Beloe warned BP’s move might be short-sighted, as falling technology costs will push a transition to low-carbon energy. “The transition…is still all but inevitable,” he noted, urging government and regulatory action to accelerate the shift to a zero-carbon economy.
From a financial perspective, the decision has been met with some optimism. Allen Good, director of equity research at Morningstar, said: “The refocus on hydrocarbons is positive for BP as is the overall lower spending, which is driven by lower renewable spending. Along with the asset divestitures, it should improve the balance sheet and returns. However, there still is little, if any, production growth and BP’s repurchase rate has been reduced materially.”
David Macdonald, founder of financial adviser and wealth manager Path Financial, suggested that BP is emboldened by the rising “anti-ESG” sentiment in the US, which he attributes to fossil fuel industry influence.
“BP seems emboldened by the ‘anti-ESG’ sentiment emerging from the US, largely funded by the fossil fuel industry itself,” Macdonald stated. He questioned why society tolerates profits from oil despite its role in existential and humanitarian crises, drawing a stark comparison: “If we were profiting from the transportation of slaves, there would be universal outrage.”
Macdonald criticised BP’s shift away from net zero, calling it a futile resistance against the inevitable rise of renewable energy. “There can be no enterprise on a dead planet,” he asserted, emphasising the urgency of climate action. While disappointed by BP’s dilution of its net zero targets, he acknowledged their transparency: “We should congratulate them on their honesty and chutzpah.”
