Investors that have stuck by oil companies, despite the growing backlash against their role in enabling climate change, have argued that it is better to be in than out.

“Engagement”, a tedious buzzword that big shareholders use, trumps divestment as they are helping companies change for the better. Abandoning corporate polluters, in fact, would be irresponsible, they say.

Some of the biggest oil players are now using the same argument to justify their membership of industry lobby groups that have promoted policies that have actively worsened the climate crisis.

Last week, Shell said that even though it has “some misalignment” with groups such as the American Petroleum Institute, the US oil industry’s biggest and most powerful lobby group, there were merits of standing by them, even as it has left others. Why? “Because there is evidence that their positions are changing, and we believe we can have a greater positive impact within the associations than outside them,” said the Anglo-Dutch oil major.

Shell said its roles on the group’s executive committee, board and climate working group and the $10m to $12.5m it paid last year for that privilege helped change the API’s position in favour of the Paris climate accord, carbon pricing and the direct regulation of methane emissions.

Investors, too, argue that they have had an influence as shareholders on emissions targets, increased spending on cleaner energies and changing the business models of publicly listed oil companies, particularly in Europe.

It is clear that oil companies are a much more sophisticated foe for environmentalists than in years past when you were either pro-climate action or against. But this now means scrutiny of fossil-fuel producers also has to be more nuanced, particularly as the energy system and how the world transitions towards cleaner fuels are complex, and getting more so.

It is a tricky business for everyone involved, whether you happen to be a dividend-hungry investor in oil companies, a financier or an energy major seeking to retain your licence to operate during the energy transition.

BP chief executive Bernard Looney has spent the past few months trying to hammer home the message that investors should not reward only green companies, but also those that are “greening”.

But what does greening mean, and what is considered a good example? If a company invests in wind farms but sells off polluting assets to less scrupulous oil players, does that necessarily make them a better, cleaner corporation?

Cynics and many activists would argue that the drive by European oil majors to announce net zero carbon emission policies is just a means to retain a seat at the table as the world navigates an uncertain climate future, while it is business as usual behind the scenes. It is highly unlikely that even “greening” companies will become “green”, they claim.

While Shell, BP and peers may have swayed the API’s position on climate change, oil companies are likely to support other policies that the lobby group is in favour of, such as cutting regulation and backing subsidies for the fossil fuel industry. Trust is also hard to win for an industry that has been behind major environmental disasters and has a history of covering up corruption.

If every major listed oil company stopped its fossil-fuel operations, national energy companies that provide the bulk of the world’s oil would still be there — often operating in countries with weak environmental rules and even weaker civil society. In addition, most scenarios presented by global energy agencies about the future see some room for oil and definitely gas.

Still, even for environmentalists, we are in a new world as political momentum shifts. The question is, what comes next and how do you compare companies? Which deserve to be backed and which to be shunned?

Shareholders have to evolve and develop the right investor tools to scrutinise corporations.

A net zero promise was an easy first step. The catch-all phrase showed a commitment to change while it was ambiguous enough to allow companies and countries to fudge what this means in practice. But now investors, activists and the public need to ask how net zero is defined and whether their plans will meaningfully reduce absolute emissions. While an energy major may have goals for 2050, what are its targets for 2025, 2030 and 2035, and how will it achieve them?

The energy transition is a multi-decade phenomenon, not an overnight sensation and political and investor discourse needs to shift to reflect this.

Letter in response to this article:

Beijing and Moscow must be on the road to net zero / From Ryan Cunningham, Silver Spring, MD, US