“There is only one way under high heaven to get anybody to do anything. Did you ever stop to think of that? Yes, just one way. And that is by making the other person want to do it.”
This quote by Dale Carnegie is a personal favourite of mine. It is just as relevant now as it was in 1936, when Carnegie used it in his famous book How to Win Friends and Influence People. Recently, I decided to find out whether Carnegie’s reasoning can be applied to corporations too. To do this, we must discover what corporations want, as this will explain their actions and the strategies they pursue. Generally, corporations want to turn a profit by providing goods or services in exchange for renumeration. I will (rather cynically) argue that this has been the main reason why corporate sustainability has really taken off in recent years. Global climate change movements have significantly contributed to this corporate shift, but mostly because the interests of our planet have now coincided with corporate interests in profit. After setting out the aforementioned position, I will argue that the relationship between profitability and sustainability is becoming even closer because of the pandemic. To illustrate this, I will draw upon the oil industry as a case study, before concluding with some thoughts about the future of corporate sustainability in the oil industry.
Climate Activism: Winning Heads Instead of Hearts
Stopping climate change is undoubtedly at the top of the international community’s agenda for the foreseeable future. But we as a species have been aware of climate change for years. Although companies are increasingly finding new ways to measure their impact on the environment, the very fact they are influential enough to make an impact is nothing new. All of this begs the question: Why are companies becoming more sustainable now after all this time? It could be because the gravity of the situation is becoming more apparent, but a wise St Andrews professor once told my class that ideas do not have agency on their own. They have been carried forward by mass movements that have grown through social media. The science may have been around for a while, but the well-known movements which champion it are relatively recent.
Leading up to the age of COVID-19, these climate change movements dominated the headlines. In November 2018, Extinction Rebellion’s first organised protest was marked by thousands of people blocking off five of London’s bridges. This extreme direct action prompted Roger Harrabin, the BBC’s environmental analyst, to remark that “we haven’t seen a British green group quite like this before”. The following year saw the emergence of Extinction Rebellion groups in foreign countries, thereby spreading their movement and their protests further afield. In March 2019, Greta Thunberg’s efforts to raise awareness about climate change bore fruit on an international level. Inspired by the young activist’s efforts, school strikes were held across the world, with more than 2 million students participating. By August, the number of participants had risen to 3.6 million.
The impact these movements have had upon decision-makers is striking. In September 2019, Greta Thunberg was invited to address heads of government and business leaders at the United Nations’ Climate Action Summit, during which she delivered an emotional speech about the failure of her audience to go beyond the 2015 Paris Climate Agreement. The conference ended with governments pledging to do more, but what was striking was the private sector’s willingness to do the same, with the International Development Finance Club pledging $1 trillion to fund clean energy by 2025. They aren’t alone in ramping up their efforts to reduce climate change; Edie’s 2020 Sustainable Business Leadership Survey revealed that out of 330 surveyed sustainability professionals in the UK, 82% were convinced that their employers would take more sustainable action in 2020 compared with the previous year.
Whilst there is no doubt that some corporate leaders are genuinely committed to stopping climate change, it is clear that a significant number of them have been driven by the increasing profitability of being openly climate conscious. Market research undertaken by World Advertising Research Centre (WARC) has shown this to be the case, with more than 75% of respondents to their 2020 Marketer’s Toolkit survey claiming that companies should be vocal about social and environmental issues. There is also an increasing number of investors that are actively looking to do business with companies that are committed to sustainability, as they too are seeing the financial benefits of being able to demonstrate a climate-conscious portfolio.
Sustainability and the Oil Industry: A Case Study
For some oil companies, the move towards sustainability was already well underway before the Coronavirus spread across the world. BP was very much ahead of the curve, having begun its renewable projects as early as the 1980s. Since then, it has continued to expand its green energy operations, which were occasionally motivated by PR disasters such as the Deep Water Horizon oil spill in 2010. The aforementioned rise of global climate change movements has led to further acquisitions; in 2017, it spent $200 million on a 43% stake in Lightsource, a sizeable European organisation which specialises in solar power. Valero Energy is another company worth mentioning: it expanded its presence in the renewable energy market through its operation of Diamond Green Diesel, a joint venture which it set up with Darling Ingredients. During 2019, the renewable diesel operations of this joint venture expanded by 80%.
During the COVID-19 pandemic, however, the situation for oil companies gained another dimension. Companies that were already facing social pressure to decarbonise have now come under significant financial pressure too. Throughout much of 2020, people across the world were forced to stay at home and restrictions were placed upon international travel. Naturally, these restrictions have had a knock-on effect on oil demand. The reduction in cars being driven, flights being scheduled, and workplaces being used resulted in a colossal fall in consumption. Indeed, the situation deteriorated to such a great extent that the price of US oil actually went negative for the first time in the industry’s history, due to concerns by oil producers that they would run out of storage capacity. With restrictions on travel being expected to continue into 2021, oil demand may take a significant amount of time to recover.
The world has seen pandemics before, but COVID-19 is the most renowned one to recently occur and it has demonstrated the overwhelming extent of threat pandemics pose to our way of life. We may be better prepared for future outbreaks but oil companies will still find themselves in dire straits if/when another pandemic emerges. Furthermore, even though the demand for oil will return for the most part, the commercial viability of large-scale oil projects will be significantly reduced until then, and oil companies have gaping revenue holes they need to fill. Because of the suspension of these projects and the numerous stranded assets which producers were unable to offload during the pandemic, oil company CFOs are increasingly considering whether the portfolios of their companies need to diversify, especially as the pandemic has shown the dangers of relying upon a single commodity.
Looking Forward: The Pandemic as a Second Catalyst
Although there has been a noticeable shift towards renewable energy, the pandemic may accelerate this process. With investors and general society increasingly seeking renewable sources of energy, some companies may see a move into renewable markets as a way to shore up their financial losses. A 2020 report from the International Renewable Energy Agency (IRENA) supports this idea, as it states that global investments in renewable energy grew more than investments in oil for the very first time. It seems that 2020 has been a year of firsts for the industry, but only time will reveal the impact COVID-19 has on the shift towards renewables. The rise in global climate activism led to a conflation of planet and profit. Thus, these ideas are no longer at direct odds with each other. This conflation will likely be at the forefront of oil CFOs’ minds in the near future, even after oil demand has recovered.
The views expressed in this article are the author’s own and may not reflect the values of The Liberty Club.
Extinction Rebellion protests block London bridges – BBC News
Greta Thunberg tells world leaders ‘you are failing us’, as nations announce fresh climate action – United Nations
How Greta Thunberg’s climate strikes became a global movement in a year – Thomson Reuters
Sustainable Business Leadership Survey 2020 – Edie
The Marketer’s Toolkit 2021 – WARC
How the six major oil companies have invested in renewable energy projects – NS Energy
Oil & Gas Majors Expedite Their Move to Renewables – Renewable Energy Hub
US oil prices turn negative as demand dries up – BBC News
Stranded assets: oil be off – Financial Times
The Post-Covid Recovery: An agenda for resilience, development and equality – IRENA