Exxon Mobil, Royal Dutch Shell, BP, Chevron, and US Oil are the world’s largest oil producers. They contribute to an industry that sucks nearly 100 million barrels of petroleum from our Earth every day, chokes our skies with smoke, and condemns all living creatures to an uninhabitable future.
As someone who cares deeply about protecting our planet, I’ve always seen the oil industry as the enemy, as the embodiment of greed and selfishness. But new research supported by the National Bureau of Economic Research makes it clear that the industry can play a key role in advancing climate solutions, too. For Big Oil to advance the clean energy transition, we must reconsider what counts as sustainable investing.
Researchers’ findings presented in the working paper entitled “The ESG-Innovation Disconnect: Evidence from Green Patenting” suggest that Big Oil may be the world’s biggest polluter AND the leader of the effort to solve climate change.
The team investigated the role of oil companies in addressing climate change by looking at patent applications for green technology. Oil companies invest three times more in climate mitigation technology than firms in manufacturing, services, and transportation and public utilities sectors, with those leading oil producers together filing nearly 7,000 patents for green technologies. These patents are critical for the expansion of wind and solar energy, electric and hybrid vehicles, energy efficient infrastructure, and carbon sequestration.
Even more surprising, these energy companies aren’t just producing more green patents than other firms, they are producing better quality green patents. Their patents are cited more than their counterparts filed by firms in other industries.
Oil companies see a future beyond oil; one of the researchers, Lauren Cohen, argues that firms like BP (“Beyond Petroleum”) “don’t want to be your oil provider for the next hundred years. They want to be your energy provider for the next hundred years,” whether that means providing wind, solar, or hydroelectricity. The research indicates that energy companies are actually investing in green technology as the keys to a post-oil future, not simply to block out competitors.
Surprisingly, Big Oil’s interest in alternative energy is not entirely new. One of the most critical patents for solar technology was produced by Exxon Mobil in 1978. Similarly, Shell’s partnership with NoordZeeWind has supported the first large-scale wind farm since it began operation in 2007.
This new research shows that oil companies can be part of the clean energy transition, but along with new opportunities comes the need to change how we think about sustainable investing.
The growing movement around sustainable finance is promising, with more and more companies pledging to invest in funds that consider Environmental, Social, and Governance (ESG) factors. The growth of ESG investing has motivated investors to shy away from companies profiting from tobacco use, weapon manufacturing, and fossil fuel production, effectively excluding funds deemed “unsustainable” from their portfolios. Investors make these decisions using ESG scores that evaluate a company’s environmental and social performance, as well as its ability to address risks and adhere to best practice standards.
It comes as no surprise that big oil companies are excluded from ESG portfolios, given their contributions to environmental degradation, public health crises, and climate change. ESG funds exclude energy producers because their actions are antithetical to the entire point of sustainable investing.
This study begs the question: should we continue to exclude oil companies from ESG portfolios? Or embrace them as titans of industry with the expertise and resources to advance a clean energy revolution?
Environmentalists have a hard time saying yes to the latter, but saying no may mean missing a key opportunity in a time of serious need. This study makes clear the opportunities and challenges associated with including Big Oil in the clean energy transition. Maybe it doesn’t have to be so black and white—maybe we don’t have to completely excuse the unethical actions of Big Oil, but we don’t have to miss out on this opportunity either.
So what if we came up with another option that doesn’t force us to either include or exclude Big Oil from ESG funds? The research team proposes an incentive-based metric that would reward companies for their sustainable behaviors to encourage innovation, rather than simply excluding companies from portfolios for their harmful behaviors. That could lead to a metric that holistically considers both the problematic contributions of oil companies to climate change AND their potential to advance sustainable progress.
L.C. Nøttaasen from Sandnes, Norway, CC BY 2.0 <https://creativecommons.org/licenses/by/2.0>, via Wikimedia Commons