Source : THE AGE NEWS
Australia’s biggest oil company became last week the latest fossil fuel giant to pare back some of its clean energy ambitions, and it almost certainly won’t be the last.
It’s a trend that shows the limits of what can realistically be achieved by investors pushing fossil fuel businesses to pursue greener causes when those goals don’t align with maximising profits. It’s also a reminder this sort of investor advocacy is no substitute for policy action by governments.
In a move welcomed by some investors and criticised by others, Woodside scrapped plans to commit $5 billion to cleaner energy projects by 2030, retired targets for the emissions that come from customers using its oil and gas (known as scope 3 emissions), and signalled a greater focus on its traditional fossil fuel business.
These changes were disappointing for some, unsurprising to others, and noteworthy all at the same time.
Disappointing because when a company of Woodside’s size scales back plans to invest in cleaner fuels, other firms might find it easier to follow suit. Some long-term investors will also be disappointed because they want to see Woodside planning for a carbon-constrained world where there’s less demand for oil and gas.
Unsurprising because, as Macquarie analysts said, the shift was consistent with the global energy sector. Woodside’s move also follows those of other natural resources giants to cut climate-friendly initiatives, including Fortescue’s move away from hydrogen last year, and BHP and Rio Tinto taking longer than expected to roll out battery-powered trucks in the Pilbara.
And yet, Woodside’s change is still noteworthy because it follows a push from many of the company’s own investors for more climate ambition, not less. It was a little more than two years ago that Woodside suffered a historic backlash against its transition strategy, which was opposed by more than 50 per cent of shareholders, including investment giants such as AustralianSuper.
The 2024 shareholder vote was non-binding, and was broader than the issues on which Woodside announced changes last week.
But even so, how does the latest move to lower its clean energy ambitions sit with that pressure for firmer action on climate change?
It shows that climate commitments from fossil fuel businesses need to be met with scepticism because they’ll always be balanced with market realities and the need to make shareholder returns. That’s inescapable in a capitalist economy.
Woodside’s climate moves will always attract controversy because it’s a giant in oil and gas, an industry at the front line of the climate policy wars.
It also shows the limits of what can be achieved by companies and investors pursuing environmental, social and governance (ESG) goals when dealing with a problem as immensely difficult as climate change. ESG goals are all well and good, but government policy action has to be the main game.
Woodside is hardly the only company to rein in spending on lower-emissions projects, such as those in hydrogen or ammonia. It has invested $US2.35 billion ($3.3 billion) in a US ammonia plant, but that’s now up for review. ExxonMobil last year also slashed its low-carbon spending by about a third and said it would allocate more capital to liquified natural gas.
Woodside chief executive Liz Westcott made it clear that one reason for the changes is that the energy transition is proving slower than expected. She said the climate targets the company was retiring no longer aligned with evolving technology, current policy settings and customer demand.
“These targets were established in a different market context and based on a different expected pace of the energy transition,” she said. “The reality is that markets for emerging lower carbon opportunities, including hydrogen, ammonia, and carbon capture and storage, have developed more slowly than anticipated.”
The company also moved to a single investment framework, so that “new” (less carbon–intensive) energy projects will be judged against the same return hurdles as oil and gas projects.
Woodside still says it supports net zero, and the company said it was affirming its targets to reduce the greenhouse gas emissions from its direct operations, known as scope 1 emissions, as well as indirect emissions, known as scope 2 emissions.
The reaction to Woodside’s move was mixed. UBS analysts welcomed the new capital framework, while climate activist group Market Forces said super fund giants that own Woodside shares were failing to hold the company to account. AustralianSuper did not comment, while the more green-minded super giant HESTA, another Woodside shareholder, expressed concerns about encouraging a more “ambitious approach to the energy transition”.
How much does it really matter if oil giants rein in their cleaner energy forays, which were never the main game for these businesses?
Rod Sims, a former competition tsar who chairs renewables group the Superpower Institute, says we were never relying on companies such as Woodside in our attempt to combat climate change. But he adds that companies still have a part to play, as well as governments. Companies should be looking at whether their product (oil or gas, in this case) will still be viable in 30 or 40 years.
“The two things that matter are government policy which drives change and companies just looking at the long-term outlook for their products,” Sims says.
Woodside’s climate moves will always attract controversy because it’s a giant in oil and gas, an industry at the front line of the climate policy wars.
But perhaps a bigger lesson is that this shows the limitations of environmental, social and governance investing in high-emitting sectors such as oil and gas.
Investment giants such as super funds often talk up the “engagement” they have with boards over climate change plans. They argue it’s more effective to have a seat at the table, rather than simply divesting from carbon-intensive businesses.
But how much change can these funds really hope to achieve when the company in question makes its money from extracting and selling fossil fuels?
Persephone Fraser, ethical research and climate policy lead at Australian Ethical, says investors who attempt to engage with companies to reduce their carbon emissions often have limited success with fossil fuel businesses, such as oil giants or big miners.
She says Australian Ethical finds it more worthwhile to engage with banks and insurers who can influence companies like Woodside through their lending or insurance policies, or policymakers directly.
“We don’t yet have evidence that long-term investors have been successful in their engagement with Woodside,” she says.
The fact Woodside dumped some of its climate targets last week shows the limitations of shareholders pushing the company for stronger climate action, she says. “I think it’s showing us that the investors have not been able to hold Woodside to account. But there are other ways to come at this problem,” she says.
Aside from green-focused or ethical investors, swaths of the investment community have also become more pragmatic in their approach to climate goals in recent years.
The world’s biggest investor, BlackRock, for example, has moved from strong climate advocacy at the start of this decade to emphasising “energy pragmatism.”
When investors have changed their tune like this, it’s hardly surprising companies like Woodside are also softening their commitments.
The Market Recap newsletter is a wrap of the day’s trading. Get it each weekday afternoon.
Clancy Yeates is deputy business editor. He has covered banking and financial services, and was previously national business correspondent in the Canberra bureau.Connect via X or email.
