Climate-focused investors irked by BP's pivot back to oil

LONDON, Feb 10 (Reuters) - Some climate-focused investors in BP (BP.L) voiced concern this week about the company's announcement that it has scaled back climate targets and now plans to produce more oil and gas for longer, yet the company's share price continued to surge on Friday.

Chief Executive Bernard Looney's strategy revision on Tuesday included a cut to BP's 2030 emissions reduction target. Three years ago, he took the helm with a vow to re-invent the oil and gas company.

BP's shares have hit their highest in almost four years, gaining around 17% since Tuesday when the group also reported a record profit for 2022 and boosted its dividend.

Bruce Duguid, head of stewardship at Federated Hermes, which co-leads negotiations with BP over its energy transition on behalf of a large group of institutional investors called Climate Action 100+, voiced concern over Looney's pivot.

"In the context of a very strong financial outcome, those investors with net-zero goals, including many of our clients, will be concerned at such a material change to BP's 2030 absolute emissions reduction target," Duguid said in a statement to Reuters.

"It also raises a significant governance question, given the high proportion of investors that supported the original (emission reduction) target only nine months ago" at BP's annual general meeting, he added.

Half of BP's top ten institutional investors are members of CA100+, according to Refinitiv Eikon data. The group includes 700 investors responsible for more than $68 trillion in assets under management.

BP did not respond to a request for comment on Duguid's statement.

Last May the company won shareholder support for its strategy which foresaw a 40% cut in its hydrocarbon output by 2030 from 2019 levels. On Tuesday BP said it now envisaged a 25% cut.

The group did not change its long-term ambition to reduce its emissions to net zero by 2050, and is still committed to using 50% of its spending budget on low-carbon businesses by 2030, Duguid said.

CA100+ will engage with BP ahead of the 2023 shareholder vote in May to ensure the company's strategy is consistent with 2015 U.N.-backed targets to limit global warming to 1.5 degrees Celsius compared with pre-industrial levels, he added.

"The decision that BP has made is regrettable, (taking) into account that the targets were approved by investors at the last annual meeting," said Angela Quiroga, environmental, social and governance (ESG) analyst at BP shareholder Union Investment.

"Our expectation was that the profits earned would be further invested in the even faster transformation of the business as stated by Mr. Looney in 2020... We have communicated our sentiment to the company on Wednesday morning."

Another investor concerned about BP's announcements, who declined to be named, said its share price boost was down to "the net present value of not transitioning" away from oil and gas, showing a sharp contrast in long- and short-term investors' views.

Other asset managers, such as Legal & General Investment Management, Redwheel, and AXA Investment Management, said they were still studying BP's announcements.

Scientists say the world needs to cut greenhouse gas emissions by around 45% by 2030 to have any hope of meeting the 2015 Paris Agreement targets. BP peer Shell (SHEL.L) was ordered by a Dutch court in 2021 to cut its emissions by 45% by 2030, a decision it has appealed.

Activist group Follow This in December co-filed a resolution with six institutional investors managing $1.3 trillion in assets ahead of BP's shareholder meeting in calling on the company to set broad emission reduction targets for 2030.

"If the bulk of your investments remain tied to fossil fuels, and you even plan to increase those investments, you cannot claim to be aligned" with climate targets, Follow This founder Mark van Baal said this week.

Reporting by Ron Bousso; Editing by Jan Harvey and David Gregorio

Our Standards: The Thomson Reuters Trust Principles.

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Ron has covered since 2014 the world’s top oil and gas companies, focusing on their efforts to shift into renewables and low carbon energy and the sector's turmoil during the COVID-19 pandemic and following Russia's invasion of Ukraine. He has been named Reporter of the Year in 2014 and 2021 by Reuters. Before Reuters, Ron reported on equity markets in New York in the aftermath of the 2008 financial crisis after covering conflict and diplomacy in the Middle East for AFP out of Israel.

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Writes about the intersection of corporate oil and climate policy. Has reported on politics, economics, migration, nuclear diplomacy and business from Cairo, Vienna and elsewhere.