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October 12, 2018

ICYMI: BP Chief Calls Out Failed Arguments of Divestment Proponents

BP Chief Bob Dudley can be added to the growing list of voices speaking out against ineffective, costly divestment campaigns. At a conference this week in London, the energy chief highlighted how divestment is a false solution put forward by individuals that “want to drive a wedge between the energy industry and investors – between oil and money.” We couldn’t agree more.

Here are four key takeaways from the energy leader that you don’t want to miss.

Divestment ignores collaboration, opportunity. Instead of focusing on political empty gestures, Dudley recommends a productive path of collaboration and engagement – an argument put forward by leaders from pension funds to academia. As Bloomberg reports:

Proponents of the divestment movement “are driven by good intentions, but my concern is that their suggested recommendations could lead to bad outcomes,” Dudley said. “We could take a different, more innovative and collaborative path. One that recognizes many fuels must play a part in meeting the dual challenge — albeit made much cleaner.”

Fellow thought leaders agree, including Bill Gates who notes “false solutions like divestment…hurt our ability to fix the problems” and Harvard Professor Robert Stavins who states “the message from the divestment movement is fundamentally misguided…We should be focusing on actions that will make a real difference.”  Chief Investment Officer at the California State Teachers’ Retirement System (CalSTRS) echoed this belief earlier this year, stating “Divestment hasn’t made the world a better place…if we divest, we don’t have a place at the table and we don’t change behavior.”

 Fossil fuels and renewables work hand in hand. Dudley corrected the flawed notion put forward by divestment activists that fossil fuels are in opposition with renewables. As the Financial Times highlights, BP’s viewpoint is renewables continue to grow at a “remarkable rate” and could make up a third of the energy mix by 2040, “but we still need to meet the remaining two-thirds of demand.”

Never mind the fact that natural gas provides critical back up power for many intermittent renewable sources, and powers the facilities that manufacture the materials needed for them, Dudley’s comments underscore the fact that large oil and natural gas companies are increasing investments in a variety of technologies from energy efficiency to renewables. As BP describes, its own portfolio contains both “flexibility and resilience” – ensuring its ability to meet the world’s growing energy needs in a variety of forms.  Recent reports from Bloomberg New Energy Finance (BNEF) similarly tout the fact that oil majors have reduced emissions by 13 percent between 2010 and 2015, and are putting their money towards new technologies, finding “in the last 15 years, {oil majors} completed 428 transactions and spent $6.2 billion building stakes in clean energy companies.”

As Axios recently reported, “whether you love or hate them, what role these companies play is inherent to addressing climate change.” Divesting does nothing to support these efforts, merely wins a few empty headlines.

The notion of stranded assets is still a flawed argument. Dudley took on the commonly misused concept of “stranded assets,” a flawed argument used by activists in an effort to legitimize the financial argument for divestment. As he highlights, “many trillions of dollars of investment in oil and gas will still be required to counter the substantial decline rates of existing fields.” These are resources critical to meeting energy demand across the globe.  The Financial Times elaborates:

While groups have spoken about the financial risks of “stranded assets”, the systemic risk comes from under-investment. “Suppose $2tn less were invested than actually required to meet demand. The impact of such under-investment on financial stability could be much more far-reaching,” said Mr. Dudley.

Divestment ignores solutions. BP’s chief noted Wednesday how activists “push for potentially confusing disclosures, raise the specter of a systemic risk to the financial system from stranded assets, and campaign for divestment” in an effort to “drive a wedge between the energy industry and investors.”  Yet real solutions to supplying the globe with energy can only be achieved through a focus on innovation and technology, a focus seen at energy companies around the globe.

According to the International Energy Agency (IEA), more than one billion people lack access to energy—most living in Sub-Saharan Africa, India and developing Asia. The same agency states, “the role that natural gas can play in the future of global energy is inextricably linked to its ability to help address environmental problems.”  This dynamic is why companies like BP are focused on solutions to support the environment and meet global energy needs, not empty gestures like divestment.

Bottom line: The voices in opposition to divestment are growing. From leaders of industry focused on solutions, to economists and pension fund leaders, the argument for divestment always falls short.