Finally, governments are putting climate change over profit

Finally, governments are putting climate change over profit. Businesses that don’t react will pay a high price.


Recently, Greenland suspended oil exploration, directly because of climate change. Greenland itself is probably rare on the agenda at C suite meetings, but there’s an imperative reason why this news should be making corporate waves.

Officials had seen potentially vast oil reserves as a way to help Greenlanders realise independence from Denmark; cutting the annual subsidy of 3.4 billion kroner ($540 million) the Danish territory receives.

And global warming meant retreating ice could uncover potential oil and mineral resources, which could dramatically change Greenland’s future.

But the government chose differently. “The future does not lie in oil. The future belongs to renewable energy, and in that respect we have much more to gain,” the Greenland government said in a statement. 

The vital point is that rejecting legacy oil over future alternatives is a sensible financial move. Laggards that still invest in oil will be firmly on the back foot for the green energy revolution. 

Much has been spoken about the energy transition. But now, global countries are finally putting their money where their mouth is on renewables. This has compelling repercussions for corporates worldwide.

Oil out

In December last year, Denmark also brought an immediate end to new oil and gas exploration in the Danish North Sea, as part of a plan to phase out fossil fuel extraction by 2050.

It’s not perfect; Denmark’s 55 existing oil and gas platforms, scattered across 20 oil and gas fields, will be allowed to continue extracting fossil fuels. But the milestone decision to end the hunt for new reserves in the aging basin will guarantee an end to Denmark’s fossil fuel production.

In Africa, partially because of Covid in addition to climate change, new licensing for fossil fuel exploration is also drying up, and projects are being postponed or cancelled in countries from Mozambique to Guinea Bissau, Reuters writes.

The pandemic-linked slowdown is raising awareness of the risks of relying so heavily on revenue from fossil fuels and other natural resources.

It isn’t just about individual government: ‘The oil world has seen many shocks over the years, but none has hit the industry with quite the ferocity we are witnessing today.

‘As markets, companies and entire economies reel from the effects of the global crisis caused by the coronavirus (COVID-19) pandemic, oil prices have crumbled. The impacts will be felt throughout oil’s global supply chains and ripple into other parts of the energy sector.’

IEA writes

The global picture is complex but the message is increasingly stark; corporates urgently need out of oil. And so does the planet.

A complex, but oil-free scenario

Right now, changes in oil markets are unpredictable as the pandemic remains. A sustained period of low oil prices would affect the prospects for clean energy transitions, easing some aspects of this transformation – such as the removal of fossil fuel consumption subsidies – while complicating others.

But the key for C suite agendas is this. Whether it’s down to Covid-enforced demand dwindling, governmental futurism, a combination of these or a growing realisation the oil dollar is no longer a safe investment, governments are turning off the demand tap for oil.

That directly controls business behaviours whether corporates like it or not. When enough governments gain pace, oil becomes uncompetitive as a resource or part of a supply chain and cost determinants will drive corporates seeking competitive performance towards renewables or suitable alternatives.

This is happening, right now. The only logical move is to get ahead of the endgame and force an early transition from oil no matter whether this causes short term commercial pain.

And of course, that analysis is based purely and solely on financial profit. When you bring in ESG, ethics, CSR, reputation and the human imperative to bequeath a liveable planet the corporate drivers grow even stronger.

Legacy companies like Shell are reintegrating their investment portfolios into new elements like Shell Energy, which offers bespoke cleaner energy options to businesses across the UK.

There’s more; one of the world’s seven fossil fuel supermajors British Petroleum, whose legacy dates back to the early days of the oil age announced, in essence, that the time had come to wind down its core business.

BP said that by 2030 it would be producing 30 to 40 per cent less oil and gas than it does now. It promised to end exploration for hydrocarbons in new countries and to increase tenfold its stake in “low-carbon investment.”

There does appear to be a genuine snowball effect growing, driven by the corporate oil giants and global governments who by pursuing net zero are in practice signing the end of the oil lease.

What happens next?

Any future is fraught with uncertainty. Then again, certainties remain; oil will run out. Climate change is here.

The simple choice facing global corporates is whether to hold out for as much profit as legacy solutions can offer, or risk greener investment now to win big when alternative energy and global policy punish those who hang in there for the legacy oil dollar.

For many C suites, this will be a challenging decision. For some, it will be evidence of a winning futurism. For others, no doubt, seeking to squeeze every last drip of profit from the final barrels of oil may be the last business decision they ever make.