A couple of years ago, setting climate targets and emission reduction plans was standard practice in the business world. Companies competed to outdo each other in these efforts, aiming to attract customers and investors. However, this trend has shifted.
Last week, the Energy Institute’s Statistical Review of World Energy revealed that global emissions are still rising. The share of renewable energy sources in the global energy mix remains small, while overall energy demand, including oil, has increased. These findings were not surprising, but they contrasted sharply with years of assurances from climate NGOs that ESG (Environmental, Social, and Governance) investing was the future and that relying on hydrocarbons was outdated and unsustainable.
In just a few years, ESG investing did not meet expectations. Wind and solar developers faced significant stock crashes due to rising production costs, and electric vehicle (EV) makers struggled with waning consumer enthusiasm. During this time, corporations realized that many of their climate targets were unrealistic, leading them to revise or abandon these goals.
The Financial Times recently noted this trend, citing political and regulatory developments—or the lack thereof—as reasons for these revisions and cancellations. Another frequent complaint among business executives was the lack of sufficient government support, often referred to as subsidies.
This point is particularly notable because governments in Europe and the United States have been generous with subsidies for transitioning to a low-emission economic model. Despite this, corporations have struggled to meet their targets, including cutting ties with “polluting sectors,” primarily the energy industry.
Rachel Whittaker, head of sustainable investing research at Dutch asset manager Robeco, told the FT, “Everyone got swept up in a wave of enthusiasm. The reality is not so easy.” Indeed, the gap between setting emission reduction goals on paper and actually achieving these reductions has become evident. Efforts to reduce emissions through activity cuts or purchasing carbon offsets have often fallen short.
Carbon offsets have faced scrutiny for consistently failing to deliver on their promises, casting doubt on the entire emission reduction push. These offsets were expected to play a significant role in emission reduction strategies, as promoted by figures like John Kerry.
Reducing emissions through activity cuts has also proven challenging. For instance, Shell was ordered by a Dutch court to reduce its oil and gas production after losing a lawsuit filed by an environmental group. Shell appealed and later reversed its transition plans, which had included reducing oil and gas production. This decision, announced by CEO Wael Sawan, caused media uproar but likely pleased investors due to strong demand for oil and gas, while Shell’s low-carbon ventures underperformed. BP also reversed its transition plans shortly before CEO Bernard Looney’s departure.
Banks have been slow to reduce their business with the oil and gas industry. While some, like French bank Credit Agricole, have announced plans to sever ties with hydrocarbon businesses, most remain invested in the energy sector because these investments are profitable, unlike many low-emission ventures.
Many companies from various industries have found their climate targets overly optimistic. These companies are now re-evaluating their goals amid regulatory pressures to avoid greenwashing or making false statements about emission reduction efforts.
Canada recently exemplified extreme measures by passing a law prohibiting companies from making emission reduction claims without sound proof. The oil and gas industry responded by removing content from industry group websites and criticizing the government for vague definitions in the law, which they argue make proving climate progress nearly impossible and open the door to lawsuits from climate activists.