The following is an excerpt from a newly released book from the former CEO of BP, called “Connect: How Companies Succeed by Engaging Radically with Society.” It has been condensed for readability in blog format.
In 1997 I was the first big oil chief to acknowledge the link between man-made carbon emissions and global warming.
I believed that oil companies, or at least BP, could no longer deny the problem. Something had to be done. But while my belief came from the heart, the last thing I wanted admit at that point was that it came from anywhere but my head. The board, executive team and employees had to be persuaded that BP was not about to commit commercial suicide. Taking a stance on climate change could make the company a sitting target for NGOs and competitors alike.
While American oil majors railed against BP for exposing the industry to environmental regulation, NGOs voiced concerns that the company was not going far enough. Some, such as Greenpeace and Friends of the Earth, refused to countenance anything other than a complete replacement of the world’s hydrocarbon system.
It was extremely hard to engage them in productive debate because their starting point was that BP should not exist. Others, such as the Pew Center and the Environmental Defense Fund, were more realistic but still nervous that my 1997 speech was little more than ‘greenwash’. BP worked hard to win their trust and eventually forged excellent working relationships with both groups. They wanted to make sure the company’s actions were meaningful, and BP needed their expertise to make that happen. Fred Krupp, the long-standing head of the Environmental Defense Fund, played a central role in the creation of the emissions trading scheme. In the 1970s his organisation had successfully halted the construction of the Trans-Alaska Pipeline; now, twenty-five years on, Krupp was working at the heart of BP as it sought to fix its relationship with the environment.
None of this was easy. It took a lot of senior-management time, required investment and demanded a large exercise in external engagement. But BP also achieved tangible impact in the battle against climate change.
At Stanford, I announced a target of a 10 per cent reduction in carbon emissions based on the 1990 baseline, to be achieved by 2010. BP reached this goal in only four years, saving $650 million in the process, by tightening up valves, halting the venting of gas and improving energy efficiency. This was low-hanging fruit that the company had ignored until the climate programme focused minds and provided the right incentives. Quick wins helped to generate momentum and build belief in the strategy amongst the workforce.
At the centre of the carbon savings was the emissions-trading scheme. Beyond its direct impact on pollution, the development of this market-based instrument also helped BP win a seat at the policy table. When the UK government wanted to develop its own cap-and-trade system, it came to BP for advice. Today, emissions-trading schemes are a crucial plank of climate-change policy across the world. The Clinton administration also began to view the company as a trusted adviser on global-warming solutions, as did California governor Arnold Schwarzenegger.
Most importantly of all, BP changed the debate on climate change. With Shell, it led the oil industry from a position of vehement denial to an acceptance that the status quo was unsustainable. Today every international oil company acknowledges man-made climate change. Instead of arguing with the energy sector over the science, governments and NGOs can now concentrate on working with industry to develop solutions. It was this realisation that Big Oil must move towards a low carbon world that motivated me to change the firm’s tagline to Beyond Petroleum.
In hindsight this went further than the public could then accept. It was a mistake to push so hard. Beyond Petroleum should have been a subheading, not a main line. The renaming symbolised the shortcomings in our climate strategy. In essence, the company had got ahead of itself and ahead of where industry and government were willing to go at that time. Beyond Petroleum was never meant to be literal – not yet, anyway – but there was still too much of a gap between the aspiration and reality, which I now regret. The actions we took were bold, but they could have been bolder. Ultimately that was my fault, and the barriers I failed to overcome provide a useful lesson for today’s CEOs as they attempt to change the status quo.
It became exceptionally difficult to keep up the pace of progress. When it became obvious that the race was on to succeed me, some saw an opportunity to moderate the firm’s position on climate change. Others sensed a growing hostility to environmentalism among right-wing voters in the US and lobbied hard to stifle coverage of BP’s actions.
In other areas BP was let down by government inaction. When environmental protection requires companies to incur costs, it is up to the state to introduce regulation that creates a level playing field and stops free-riders taking advantage of firms that invest voluntarily. After twenty years of failed UN conferences, governments are still unable to agree an international treaty on climate change. That is not an excuse for business to sit on its hands but it certainly makes it harder to justify investments to lower carbon emissions. BP did allocate time and money for research and development on carbon capture and storage but did not receive sufficient backing from the US or UK to make it an economically viable option. Like Shell, BP was willing to share the results of any breakthrough as a public good, but needed the state to underwrite part of the significant costs.
My developing view of climate change at BP demonstrated why the environment is the most difficult stakeholder of all to connect with effectively. Society was no longer willing to tolerate denial of climate change but neither was it ready to create a context that rewarded a full-blown attempt at a solution. To understand that paradox we need to look to the past.
John Browne, chief executive of BP from 1995 to 2007, is now executive chairman of L1 Energy.
Robin Nuttal, partner in Mckinsey’s London office and Tommy Stadlen, Tech entrepreneur, co-authored this book.