BP's Strategic Shift

In a surprising move, BP recently announced a strategic shift back to fossil fuels, abandoning its ambitious renewable energy targets.

The decision sent ripples through the Environmental, Social, and Governance (ESG) industry, raising questions about the future of sustainable investing and corporate responsibility.

The decision

BP’s CEO, Murray Auchincloss, revealed that the company would scrap its goal to increase renewable generation 20-fold by 2030. Instead, BP will boost investments in oil and gas production by about 20%, while cutting renewable energy investments by more than $5 billion. This pivot comes amid pressure from investors concerned about BP’s lagging profits and share prices compared to its rivals.

Implications for the ESG industry

What does this mean for the ESG industry, when one of the world’s largest fossil fuel businesses publicly u-turns on its pledges?

These issues matter for investors with ESG or sustainable investment portfolios. It’s an industry that has grown significantly, but it requires broad support to grow, such as the world’s largest energy firms investing in green alternatives.

Criticism and concerns

Many investors have criticised BP’s shift, viewing it as a step backward in the fight against climate change. Institutional investors like Phoenix Group, KLP, and Robeco have expressed disappointment, arguing that increasing oil and gas production is short-sighted and poses significant risks as the global energy transition accelerates. Diandra Soobiah from Nest described the move as misguided, emphasising the potential for high-cost projects to fail in delivering promised returns.

Market reactions

The market’s reaction has been cautious. BP’s stock experienced a slight dip following the announcement, indicating scepticism about whether this strategy will pay off in the long run. However, the move aligns with a broader trend among major oil companies including Shell and TotalEnergies, which have also scaled back their green energy investments. Presumably to prioritise near-term financial results.

The other major headwind for ESG in the near term is the election of Donald Trump. Trump’s presidency is likely to have significant impacts on the global ESG market, with both immediate and long-term consequences.

The next four years present a crossroads moment for the ESG industry. It underscores the need for continued advocacy, transparency, and accountability in corporate sustainability practices. The global ESG market will need to adapt to these changes, balancing short-term policy shifts with long-term sustainability goals.

Deregulation and policy shifts

President Trump’s administration has historically favoured deregulation and support for traditional energy sectors like oil, gas, and coal5. It appeals to his base and his stated aims of reinvigorating American industry. This approach is expected to continue, potentially leading to the roll back of environmental regulations and reduced support for renewable energy initiatives. Such policy shifts could undermine ESG principles, particularly those related to environmental sustainability.

Contrast this with the broad political support that ESG has enjoyed previously, particularly during and immediately after the Covid-19 pandemic.

Impact on investment trends

The sheer force at which the Trump agenda is being actioned means there could be two notable results:

1. Reduced Enthusiasm for ESG Investments: Trump’s stance against ESG could dampen enthusiasm for ESG-focused investment products such as green bonds and sustainability-linked loans. This might result in decreased funding for projects aimed at environmental and social improvements, affecting the growth of the ESG market globally.
2. Shift in Corporate Strategies: Companies may follow BP’s lead and adjust their sustainability initiatives to align with the administration’s policies. This could lead to a reduction in corporate commitments to ESG goals, particularly in industries that benefit from deregulation and increased fossil fuel production.

Global ripple effects

Trump’s policies could have ripple effects beyond the US, influencing global ESG practices. Countries and companies that rely on US leadership in sustainability may face challenges in maintaining their ESG commitments. Additionally, international efforts like the Paris Agreement could be impacted by the US’s reduced participation and support.

The broader geopolitical situation is much more volatile than in previous years, with the traditional order of things shaken up. Where the US might have been seen as a force to bring people together around a shared goal, such as better ESG practices, that’s no longer the case. EU members are also experiencing far right challenges in their domestic elections, while Russia and China remain mistrusted, in the main.

Resilience and adaptation

Despite these challenges, the ESG market has shown resilience in the past. During Trump’s first term, ESG-focused funds continued to grow, driven by consumer and investor demand for sustainable practices. This suggests that while federal policies may pose obstacles, market-driven sustainability efforts can persist.
Whether all this is good or bad depends on your investment timeline.

We might be in a perfect storm at the moment, as investors hold the whip hand in a stumbling global economy, backed by climate-sceptic leaders in the US. However, this might represent a long-term opportunity with some undervalued stocks in the ESG space. The issues that sparked the sharp acceleration of the ESG industry haven’t disappeared, and while it might unfortunately take a graphic catastrophe (like forest fires, a drought or flooding) to force action, climate change on its current trajectory is bound to provide such moments.

Investments in ESG funds were never designed as a short-term punt. It’s a belief that humankind has to change its behaviours to create a fairer society and deal with systemic issues that threaten our way of life, so it’s useful to retain that perspective.

The path forward

While BP’s decision marks a significant shift, it also underscores the complexities of balancing financial performance with sustainability goals for many energy businesses. For the ESG industry, this moment could serve as a call to action.

As the world grapples with the urgent need to address climate change, the ESG industry must navigate these challenges and continue to advocate for a future where economic growth and environmental stewardship go hand in hand.

BP’s decision has sparked a debate about the balance between financial performance and sustainability goals across several sectors of society. It highlights the challenges companies face in navigating the energy transition and the varying priorities of different investor groups, not dissimilar from the way governments are struggling to sell the net zero dream to their citizens in the form of increased energy bills to support the transition away from fossil fuels.

As far as Wren Sterling is concerned, investor preference dictates whether we recommend ESG funds to clients. We apply a screening, whereby we ask clients if they have any preferences for investing in ESG funds and we’re pleased to be able to accommodate those wishes.

2025 feels like a significant year in the geopolitical climate. We’ve seen companies focus on profit and performance as inflation hangs around and a global tariff war rages. ESG might need to wait its turn, but we still believe in the fundamental principles behind the movement and its ability to achieve the long-term goals of our clients.

However, we recognise there’s more than one way to reach that point and that route might be circular. And by the look of their actions, so does BP.

This article this is for information only and does not constitute advice. The value of your investments can go down as well as up, so you could get back less than you invested.