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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.
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.”
