Financial markets’ approach to climate change is at a crossroads. The good news is that companies and investors are stepping up in ever greater numbers to voice ambitious and mutually reinforcing climate change commitments. But the climate transition still lacks capital.

Investors have expressed skepticism about corporate climate change ambitions, citing a lack of relevant detail on investment plans and capital allocation priorities. Beyond growing climate change disclosure, there is still limited engagement on how climate change affects corporate plans to generate value and stay resilient in the long term.

Analysis of the 100 of the world’s largest publicly traded companies¹underscores this gap.

• 84 have set ambitious climate change goals – however, just 27 companies even reference climate change or ESG in presentations to investors about their long-term strategic plans.
• As of Dec 31, 2021, only 7 companies provided substantive details on how their climate-integrated strategic plans are being implemented.

Investors want to reward companies that demonstrate their ability to generate value and deliver real-world contributions to tackling climate change. That requires robust, well-rounded transition plans that are integrated with business strategy and a way for companies and investors to engage on those plans.

That’s why we produced the Climate Transition Conversation Guide, a framework for building credibility through dialogue and providing important accountability to each other and external stakeholders.

Furthermore, we invite our members to share their experiences with certain elements on this framework. Below, bp outlines how they are engaging shareholders as they transform the company in response to the challenges and opportunities of the energy transition.

bp’s transformation

On 12 February 2020 bp CEO Bernard Looney set out a vision for bp to become “a very different kind of energy company”, one that is “valued by shareholders as a force for good as well as a provider of competitive returns.”

The scale of the challenge was clear: executing the largest transformation in bp’s corporate history and convincing investors that in doing so bp could deliver sustainable long-term value. And within a month, the onset of the Covid pandemic meant that we faced one of the toughest years in the industry’s history.

But we knew we had to change and play our role in the energy transition, because it is the right thing for the world, and a tremendous business opportunity for bp. As Bernard said, “there is no turning back”.

Three phases of transformation: direction, change, & delivery

In the first phase of our transformation, we set a new direction for the company. We embraced a new purpose – reimagining energy for people and our planet; a new ambition – to be a net zero company by 2050 or sooner, and to help the world get there; and ten aims to support that ambition.

While many investors and stakeholders welcomed the new direction, we faced questions on how we would deliver. So, in phase two – in the summer of 2020 – we presented an integrated plan for change; to transform from an International Oil Company to an Integrated Energy Company – from IOC to IEC.

We outlined a new three-part strategy, built around resilient hydrocarbons; convenience and mobility; and low carbon energy. One that will help us deliver the clean, reliable and affordable energy that our customers want and need.

The strategy was enabled by a new financial frame, with a clear set of priorities for the uses of capital. This was grounded in some tough decisions and a focus on resilience and discipline. We reset our distribution policy to allow us to: pay a resilient dividend; strengthen our balance sheet; and invest in the energy transition. And we outlined a clear frame for capital investment to drive value growth.

We underpinned this strategy with a new sustainability frame, building on this in early 2021 with a set of aims for getting to net zero, improving people’s lives and caring for our planet.

And we presented a new investor proposition to deliver long-term value for shareholders, connecting distributions, profitability and sustainable value.

Since then, we’ve been focused on phase three – delivery

We are building a track record of performance, with:

• Seven consecutive quarters of net debt reduction;
• Disciplined allocation of capital; and
• Increased shareholder distributions

We have real momentum in our strategic transformation:

• Completing the biggest restructuring in bp’s 112-year history;
• Bringing in high-calibre, specialised talent including from other industries; and
• Demonstrating concrete progress across our three strategic focus areas.

We continue to update and engage investors as we develop our plans. And we have expanded our disclosures to help stakeholders measure our progress on this journey.

This includes recently outlining our plans to invest more than 40% of our total capex spend in transition growth businesses by 2025, rising to around 50% by 2030. We are also accelerating our net zero ambition; we are now aiming for net zero by 2050 or sooner across our operations, production and sales – something we believe is unique among our peers.

What have we learned?

In line with the FCLTGlobal mission, we’ve worked hard to engage, listen and work to bring investors along on our transformation. For companies embarking on similar transformations – and their investors – we share three lessons learned.

1. The best conversations happen when companies and investors speak a common language on climate.

Like investment, climate speaks its own language with a plethora of acronyms and technical terms: net zero; Scope 1, 2 and 3 emissions; TCFD and IPCC. To overcome this obstacle, we have found that the best conversations happen with integrated engagement between corporates and investors; with Portfolio Managers and ESG specialists together. And it is where tools like the FCLTGlobal conversation guide can provide a framework, helping to inform those integrated conversations.

Our integrated approach is embodied by the creation of a dedicated Strategy & Sustainability function which firmly embeds ESG leadership within our approach to strategy.

2. Investors increasingly understand that to meet the Paris goals the world needs to support greening companies.

The world needs more green companies to help meet the Paris goals. But they are too few and mostly too small to have impact at the scale and pace we need. That’s why – supported by the details of our strategy and climate ambition – we’ve been making the case that investors need to support greening companies too: companies with scale and know-how, with the ambition to become lower carbon, with a credible plan for how to do it, and with disclosures that ensure transparency and accountability.

And we’ve found that investors increasingly understand that greening companies can offer both positive climate impact and sustainable long-term value as part of a balanced portfolio.

The challenge to companies is: can you demonstrate the evidence to support your case?

3. Companies need to make the tough decisions that show they are serious about their net zero ambitions, while continuing to perform in the short-term.

We’ve always understood that investors want to see balance – what we call performing while transforming. We’ve made some tough decisions to position us to achieve our net zero ambition and deliver long-term value for shareholders.

And we’ve never lost our relentless focus on operational excellence and financial performance. That’s helped us maintain the trust of our investors and their support for our transformation.

We know we don’t have all the answers, but we are learning. There are bound to be setbacks along the way – but we remain guided by our purpose and committed to ‘Performing while Transforming – focused on delivering long-term value for shareholder as we play our role in the energy transition the world needs.