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Big oil in VC funding of GreenTech - positive sign or cynical greenwashing?

Neil Raden Profile picture for user Neil Raden June 2, 2023
Summary:
On the surface, big oil investing in GreenTech looks like progress. But the reality is a bit more complicated. Where does industry transformation end, and greenwashing begin?

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According to an article in Pitchbook, Big oil' Bankrolls more climate VC deals, a dilemma for Founders, by Rosie Bradbury:

The flow of fossil fuel dollars into climate-tech VC deals jumped in recent years—but accepting checks from "big oil" isn't a straightforward proposition for some green startup founders. More than one-fifth of all VC investment into climate-tech startups in 2022 was in deals with participation from oil and gas companies: $6.79 billion out of $36.47 billion.

This is an exciting trend. Over the past decade, oil and gas companies invested heavily in green energy. With the increasing concern over climate change and the need for renewable energy sources, it's an obvious strategy for these companies to diversify their portfolios, but is that their objective? Investing in green energy and the potential conflict of interest that may arise provokes an intense debate about whether it is ethical for oil and gas companies to invest in renewable energy when their profits are tied to fossil fuels. Arguments exist for and against it.

While such investments could help accelerate the transition to a low-carbon economy and mitigate the worst impacts of climate change, the conflicting issues between their core business and their investments in green energy are concerning.

On the one hand, oil and gas companies have the financial resources, technical expertise, and established supply chains that can be leveraged to develop and scale up renewable energy projects. They have access to vast amounts of capital that could be invested in renewable energy. Their existing infrastructure and energy sector knowledge could be invaluable in transitioning to a sustainable energy system.

Fossil fuel giants, looking ahead, worry about "stranded assets," fossil fuel resources they can no longer consume or sell, leading them to invest in climate-tech startups. From the article in Pitchbook, startup Amogy, which uses liquid ammonia for commercial power transportation, raised $139 million in a Series B1 round led by petrochemical giant SK InnovationAramco Ventures, the venture arm of the world's largest oil producer, Saudi Aramco, was in the round. Saudi Aramco's blue ammonia production, fuel derived by capturing carbon when splitting methane molecules in natural gas, is a natural fit for investment in Amogy.

Proponents argue that oil and gas companies investing in green energy are a positive development that can help accelerate the transition to a low-carbon economy. They have the financial resources, technical expertise, and established supply chains to develop and scale up renewable energy projects. By investing in green energy, they reduce their exposure to the volatile oil and gas markets and potentially mitigate the risks associated with transitioning to a low-carbon economy. By embracing renewable energy, they can burnish their shabby public image and reputation, attract environmentally conscious investors and customers, and position themselves as leaders in the fight against climate change.

Royal Dutch Shell, one of the world's largest oil and gas companies, has invested heavily in wind, solar, and electric vehicle charging infrastructure in recent years, aiming to become a net-zero emissions energy business by 2050. Shell developed a biofuels business and carbon capture and storage (CCS) technologies to get there. Similarly, BP, another major oil and gas company, aims to become a net-zero company by 2050 by investing in renewable energy, including wind and solar power, electric vehicle charging infrastructure, and biofuels.

On the other hand, critics argue that oil and gas companies investing in green energy are a cynical move designed to maintain their dominance in the energy sector and delay the transition to a low-carbon economy. These companies are vested in continuing to extract and sell fossil fuels, which generate most of their profits. They may use their investments in green energy to greenwash their image and distract attention from their core business. Moreover, these companies may be seeking to use their financial resources and political influence to shape the policies and regulations that govern the transition to a low-carbon economy in their favor.

ExxonMobil, the American multinational energy company, recently reported record first-quarter profits of $11.4B, a staggering high bar to cross in a transition. ExxonMobil has been criticized for its investment in green energy, which many see as a public relations exercise rather than a genuine commitment to reducing its carbon footprint. Though it has invested in algae-based biofuels and CCS technologies, its investments in green energy represent a tiny fraction of its overall investments in oil and gas. Moreover, the company has been accused of funding climate denial campaigns and lobbying against climate policies, which suggests that its investment in green energy may be more of a public relations strategy than a genuine attempt to transition to a low-carbon economy.

Should there be a well-formed policy governing how the massive energy industry makes this transition in a way that benefits the planet? A strong political will is needed to implement policies prioritizing renewable energy sources, incentivizing energy efficiency, and penalizing greenhouse gas emissions. Companies should be required to disclose their investments in renewable energy and report on their impact on their overall emissions. This would allow investors and stakeholders to evaluate the sincerity of their commitments to reducing their carbon footprint. Additionally, policymakers should be wary of accepting the influence of oil and gas companies on policy decisions and should prioritize the interests of future generations.

To address this conflict of interest, companies should be required to invest in green energy in a transparent and accountable manner. They should be obligated to disclose their investments in renewable energy and report on the impact that these investments are having on their overall emissions. This would enable investors and stakeholders to evaluate the sincerity of these companies' commitments to reducing their carbon footprint. Furthermore, policymakers should prioritize the interests of society as a whole when designing policies and regulations that govern the transition to a low-carbon economy. Policies incentivizing the adoption of renewable energy sources, promoting energy efficiency and penalizing greenhouse gas emissions could effectively accelerate the transition to a sustainable energy system.

My take

The issue of oil and gas companies investing in green energy is complex. It begs for a balance between the need to reduce greenhouse gas emissions and the extraordinary influence of the fossil fuel economy. One hopes the planet will prevail but as my Parisian partner often warns me, "Il ne faut pas vendre la peau de l'ours avant de l'avoir tué." (Don't count your chicks before they're hatched.). The Pitchbook article summed it well:

Fossil fuel companies are diversifying their assets, but that doesn't mean they're slowing down their emissions. Saudi Aramco has said that it doesn't plan to cut its carbon emissions until 2035. Meanwhile, the CEO of BP, which has a very active venture arm, reportedly said privately in February that he would dial back the company's push to renewable energy after disappointing returns in some green investments.

Image credit - Change pollution with green environment © alphaspirit - Fotolia.com.

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