Oil Majors Re-evaluate Green Investments Amid Anti-ESG Momentum
Oil Majors Re-evaluate Green Investments as Anti-ESG Movement Gains Traction
U.S. and European energy giants are recalibrating their green energy strategies and scaling back significant low-carbon projects, primarily driven by a burgeoning global anti-Environmental, Social, and Governance (ESG) movement and shifts in political landscapes. This re-evaluation marks a pivotal moment for the energy transition, impacting investment flows and corporate decarbonization commitments.
Political and Legislative Shifts Undermine Green Initiatives
The United States has emerged as a focal point for the anti-ESG movement, with over 370 anti-ESG bills introduced in 40 states between 2021 and 2024. These legislative efforts, which initially targeted financial services, are now broadening their scope, creating legal and political hurdles for companies pursuing ESG objectives. A significant catalyst for this trend is the re-election of Donald Trump as U.S. President in 2024, which has intensified efforts to roll back climate policies and curtail clean energy credits. Trump's administration is expected to prioritize the fossil fuel sector, challenging the previous administration's climate action initiatives.
The regulatory landscape has become increasingly fragmented. While federal agencies like the U.S. Securities and Exchange Commission (SEC) have eased climate disclosure mandates, states such as California continue to enforce stringent requirements. Globally, the European Union is also undergoing a "deregulation" phase for sustainability rules, signaling a moderation of ESG ambitions for competitiveness. This divergence forces companies to navigate a complex and often contradictory compliance environment.
Major Oil Companies Adjust Decarbonization Pathways
Several major oil companies have publicly announced adjustments to their low-carbon and renewable energy portfolios:
Exxon Mobil Corp. (XOM) is re-evaluating its ambitious $7 billion Baytown low-carbon hydrogen project. The company expressed concerns about the viability of a market-driven business without sufficient federal tax incentives for natural gas-fed facilities, particularly after changes to the 45V tax credit under the "One Big Beautiful Bill Act" accelerated the construction start deadline.
BP Inc. (BP) has signaled a strategic pivot back to its core oil and gas operations. The company exited the Australian Renewable Energy Hub (AREH), one of the world's largest planned green hydrogen projects, relinquishing its 63.57% stake. This move reflects BP's broader strategy to boost oil and gas investments by approximately 20% to $10 billion, while reducing funding for renewable energy projects, in response to investor pressure and a focus on higher shareholder returns.
Shell Plc. (SHEL) and Equinor ASA (EQNR) have also scrapped plans for low-carbon hydrogen plants in Norway, citing a lack of market demand and economic feasibility. Shell, for instance, cancelled plans for a plant on Norway's west coast, while Equinor abandoned a similar project. Shell has also relaxed its 2030 carbon reduction target and reduced its workforce in the low-carbon solutions sector by at least 15%.
Beyond these majors, developers of green hydrogen projects globally are scaling back investments, with examples including ArcelorMittal, Iberdrola, and Repsol in Europe, and Origin Energy and Trafigura in Australia, all citing high production costs and weak demand.
Market Reaction and Broader Implications
The shift away from aggressive decarbonization strategies by oil majors has significant implications for the energy sector. While traditional oil and gas companies may experience potentially bullish sentiment due to reduced pressure to transition, green energy investments and ESG-focused funds face bearish headwinds.
Following Trump's re-election, clean energy stocks experienced a downturn. NextEra, a major clean energy company, saw a 5 percent drop, while hydrogen fuel cell developer Plug Power lost a fifth of its value, and solar company Sunrun dipped by almost 30 percent. Derrick Flakoll, North America policy associate at Bloomberg New Energy Finance (BNEF), attributed these declines to "market expectations of reduced policy support for clean energy."
The Inflation Reduction Act (IRA), which previously spurred nearly $450 billion in private investments in green energy and was projected to cut U.S. emissions significantly, is now under threat. This policy reversal creates high volatility within the energy sector as companies adjust their long-term strategies.
Expert Perspectives
Analysts emphasize the evolving priorities within the energy sector. Edward Hirs, an energy fellow at the University of Houston, observed, ">Trump isn't opposed to anything that actually makes money." This sentiment underscores a pragmatic approach where the commercial viability of projects is paramount. The current environment suggests a rebalancing of energy strategies, with a stronger emphasis on near-term profitability and energy security over aspirational long-term decarbonization goals.
Outlook
The coming quarters are expected to reveal further recalibrations in corporate energy strategies. Companies will need to navigate conflicting regulatory demands and geopolitical realities while balancing shareholder expectations for returns with long-term sustainability concerns. Key factors to watch include the full implementation of U.S. federal policy shifts, the response of international bodies to global competitive pressures, and the commercial development of viable low-carbon technologies. The pace of capital allocation towards traditional fossil fuel projects versus innovative green solutions will be a critical indicator of market direction in the evolving energy landscape.
