From carbon dependence to renewables: The European oil majors' strategies to face climate change
Published in: Business Strategy and the Environment
International oil companies play a central role in transitioning to a low-carbon economy. These companies have the leadership and influence to advance technological alternatives or sustain the current dependence on fossil fuels.
This article was published in 2022 on Business Strategy and the Environment and aimed to analyse the decarbonisation strategies that major European oil companies are performing in the wake of climate change. An extensive document analysis integrated with carbon emission data from 10 European international oil companies was conducted to capture each company's decarbonisation strategy from 2005 until 2019.
Three critical parameters were used to decline the classification of companies among different strategies:
- total GHG emissions reduction
- engagement incidents with renewables
- investments in carbon capture and storage technologies.
Those three parameters are adequate for delineating the decarbonisation pathway companies are pursuing because they comprise the range of mitigation actions that companies can perform while also being a quantifiable element that can facilitate comparisons between companies. Additionally, we also considered how companies perceived climate policy and if they identified the need to adapt their operations.
The study identified four different decarbonisation strategies companies were adopting: sustained carbon dependence, carbon emissions compensation, mitigation, and carbon independence.
Carbon-dependent companies saw climate policy threatening their businesses and did not recognise the need to adapt to climate change. They have not reduced their emissions and only adopted marginal investments in renewable energy.
Carbon compensation companies presented marginal emission reductions and were investing in carbon capture technologies as an alternative to mitigate their emissions.
Carbon emissions mitigation companies have performed considerably more investments in renewables technologies, including biofuels, hydrogen, and wind and solar power. They also presented emissions reductions consistent with European policies and started to see climate change mitigation as an opportunity to enter new markets.
Only one company from our sample presented a carbon independence strategy by progressively selling its fossil fuel assets and investing in solar and wind energy. As such, the company is not an oil company anymore and, instead, is a leader in the renewable energy market.
Our classification's distinct strategies and the key factors that determine those approaches can help interpret climate responses from industries apart from the oil and gas sector.
Our findings also demonstrated that a favorable political context, such as the European one, or technological alternatives linked to renewables might not be enough to steer companies in different directions. As such, more evidence is needed to understand why companies exposed to a similar external environment have different perceptions about the urgency of climate change and its meaning for their business.
The study identified a handful of factors that can be further explored. The first is the kind of internal resources that firms possess, which might make investing in specific low-carbon alternatives more appealing than others. The second is a different comprehension of what climate change means to a firm's business, which may reflect how companies collect external information and assign weight to different external pressures. A third aspect concerns companies' perceived influence over socio-political and economic actors. Finally, the individual motivations of CEOs and managers could also play a central role in adopting a carbon independence strategy.
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Authors at the Department of Management
Leticia Canal Vieira – Research Fellow
Academic disciplines: Environmental Engineering, Management Engineering, Environmental Planning.
Teaching areas: Sustainability transitions, Sustainability Performance Measurement
Research fields: Performance measurement and management systems, Sustainability measurement and management, Sustainability transitions, and Decarbonization strategies.
Post-doctoral research fellow at the Department of Management, University of Bologna. Leticia teaches Sustainability Transition Management at the University of Bologna. She is also part of the core faculty of the Bologna Business School.
Mariolina Longo – Associate Professor
Academic disciplines: Management Engineering
Teaching areas: Business Management, Business Sustainability
Research fields: Performance measurement and management systems, Sustainability measurement and management, Sustainability transitions, and Decarbonization strategies.
Mariolina Longo is Associate Professor of Management at the Department of Management of the University of Bologna
She has coordinated research projects funded by the European Commission, the Italian Ministry for University and Research, and large Italian companies. Her publications have appeared in several international academic journals including the International Journal of Operations and Production Management, International Journal of Management Reviews, Ecological Economics, and Italian financial newspapers.
Matteo Mura – Associate Professor
Academic disciplines: Management Engineering
Teaching areas: Management Control Systems, Business Sustainability, Measuring Sustainable Performance, Sustainability-Oriented Innovation
Research fields: Performance measurement and management systems, Sustainability measurement and management, Sustainability transitions, and Decarbonization strategies.
Matteo Mura, PhD, is an Associate Professor of Management Control Systems at the Dept. of Management of the University of Bologna, and the Director of the Centre for Sustainability and Climate Change at the Bologna Business School. His research focuses on designing and implementing sustainability performance measurement systems, sustainability transition management, and circular economy.