on Climate Change
Taking Climate Change Seriously: British Petroleum’s Business Strategy
by Ernest A. Lowe and Robert J. Harris, Ph. D
published in Corporate Environmental Strategy, Winter 1998
Update May, 2010:
Context for BP’s break with the
(BP's site, www.bp.com has a large number of references to climate change and global warming but without a focused access to them. A search on these terms will give you access to speeches, social and environmental reports dealing with the issues.)
Ernest Lowe is one of the pioneers in applying industrial ecology to business and community strategic planning. He is co-author of Discovering Industrial Ecology (Battelle Press) and the Eco-Industrial Parks Handbook.
Dr. Robert J. Harris is president and founder of Paradigm Research International, in Reston, Virginia He specializes in creating new business models that help organizations achieve sustainable growth. Harris has advised public and private companies, non-profit organizations and government agencies in the areas of health, energy, environment, chemicals, real estate, transportation, national security, telecommunications and computer technology. He received his doctorate in physics at the College of William and Mary.
In this article CES explores the implications of British Petroleum’s decision to accept the emerging consensus on global climate change and acknowledge its contributions to greenhouse gas emissions. BP has formed an action agenda for reducing emissions internally and for working in partnership with other organizations around the world to reduce human impact on climate. We focus on why BP made this decision, how BP arrived at the decision, and its implications for BP itself, for its competitors, and for other multinational corporations.
British Petroleum appears to be fundamentally changing the way it does business. In a groundbreaking speech by CEO John Browne in May, 1997, (1) British Petroleum announced to the world its decision to accept that climate change is occurring and its intention to do something about reducing BP's contributions to it. This action has attracted attention from President Clinton, BP's competitors, environmentalists, and the business press; it also has the potential to raise, considerably, public expectations regarding the actions of other multinational companies.
Browne’s speech was a breakthrough for four reasons.
Is BP reacting to inevitable
environmental pressures, but
conducting business as usual, or is BP seizing the moment and using
global climate change as a doorway to a new business model for the 21st
century? In conducting the research for this article, the authors
interviewed BP personnel, representatives from other oil companies and
from environmental organizations. (please see Acknowledgments at
end.) What follows explores how and why BP decided to act on
climate change and, from this experience, we distill learnings that
other companies can use to inform their environmental strategy.
The Context for BP’s Break with the Industry
On May 19, 1997 John Browne, British Petroleum's Group Chief Executive, broke with the oil industry's position on greenhouse gas emissions and global climate change with these words.
"There's a lot of noise in the data. It is hard to isolate cause and effect. But there is now an effective consensus among the world's leading scientists and serious and well informed people outside the scientific community that there is a discernible human influence on the climate, and a link between the concentration of carbon dioxide and the increase in temperature. The time to consider the policy dimensions of climate change is not when the link between greenhouse gases and climate change is conclusively proven but when the possibility cannot be discounted and is taken seriously by the society of which we are part. We in BP have reached that point."
In this speech at Stanford University Browne acknowledged BP's role in contributing to greenhouse gases and announced a strategy for reducing such emissions across the worldwide operations of the company.
In late September BP's chief executive built upon this strategy in a second address in Berlin. Here he proposed more detailed policy options including energy taxes, carbon emissions trading, and joint implementation. Browne emphasized the need for different countries to develop the mix of greenhouse gas reduction strategies appropriate for each. He re-emphasized the proactive position he had announced at Stanford:
"I've been struck since I first spoke on this subject . . . by the degree of support there is within our company for a constructive approach—an approach which doesn't start with a denial of the problem, but rather with a determination to treat this as another challenge which we can help to resolve."
These talks came
moments: beginning six months prior
to the Kyoto U.N. Framework Convention on Climate Change, and at a time
when many U.S. corporations sought to discourage the Clinton
Administration from "going too far" in agreeing to limitations on
emissions at this meeting.
"Every major economy in the world where we have significant exposure has had a loss . . . we started getting concerned about this problem, and we got our experts to look at the reasons for these losses. They turned around and said 'well, we can't prove that we have a definite global warming problem, but by the time we can, you chaps are in real trouble." (4)
Five major European insurance companies have begun an effort to take their customers' environmental performance into account when setting premiums and to improve their own environmental record: Senior executives of UNI Storebrand (Norway), Swiss Re, Gerling Global Konzern (Germany), General Accident (UK), and National Provident Institution (UK) pledged to integrate environmental considerations and a 'precautionary principle' into their business goals. These and other financial companies collaborated with Leggett in writing a book on climate change in 1996. (2 & 5)
By late 1996 Leggett had left Greenpeace to launch Solar Century, a non-profit organization devoted to increasing investments in photovoltaic energy sources. The Chairman of the Gerling Group reinsurance company is on this organization's board and has formed Gaia Kapital, a venture capital fund, to invest in solar. Swiss Re has invested in one of Solar Century's first projects.
Public concern and the leadership of these European re-insurance companies has helped European leaders to set tighter greenhouse gas limits for their countries and to urge prompt U.S. action on its emissions. However, major U.S. corporations have worked to counter the threat of U.S. commitments to emissions reductions. The Global Climate Coalition (GCC) has been an important channel for their communication to the public and to Washington. Gail McDonald, president of the Global Climate Coalition, says:
" . . . there are those who would rush the United States into an international climate agreement that could have devastating impacts on our economy. It's no wonder that more than fifty United States Senators have co-sponsored the "Sense of the Senate" resolution introduced . . . by Senator Robert Byrd, D-WV, and Senator Chuck Hagel, R-NE, calling on President Clinton to refrain from signing any international climate agreement that does not apply to all nations of the world equally. The proposals currently under consideration by the United Nations do not." (6)
This "Sense of the Senate" resolution was passed unanimously. Environmentalists have criticized the business-led demand for equal application of the climate agreement to developing and developed nations as a resourceful strategy to kill any agreement because developing countries leaders generally insist that they need softer limits in order to build their economies. They also argue that industrialized countries are responsible for a disproportionate share of greenhouse gas generation. BP withdrew from the Global Climate Coalition in 1996 and began to form the contrarian position announced in the May 19th speech by Browne.
One last important piece of the context for BP's decision is the Economists' Statement on Climate Change, a consensus document circulated in January 1997 and signed by over 2,600 members of the American Economics Association, including eight Nobel laureates. It states,
"As economists, we believe that global climate change carries with it significant environmental, economic, social, and geopolitical risks, and that preventive steps are justified. Economic studies have found that there are many potential policies to reduce greenhouse-gas emissions for which the total benefits outweigh the total costs. For the United States in particular, sound economic analysis shows that there are policy options that would slow climate change without harming American living standards, and these measures may in fact improve U.S. productivity in the longer run." (7)
Setting the Stage for BP’s Change
The key turning point in the formulation of BP’s position on climate change and the writing of Browne's speech was when BP withdrew from the GCC and decided to take stock of itself and the world. However, the foundation was laid for this year and a half decision process during the recession of 1992:
"We suffered a down turn like many companies in ’92," said one executive, "and it became a crisis for us. Our ’92 financials were dramatically bad and that triggered a sea change in how BP viewed its operations. We took a lot of steps to refocus and became a much flatter organization. Browne, was crucial in this change. " (8)
One of the outcomes of this change at BP was a greater emphasis on partnering and strategic alliances. BP became organized around small business units that were free to get what they needed from the best sources. This decentralization led to differing views on how best to do any particular task which led to "out of the box" thinking, a phrase used by all BP representatives interviewed for this article. This new approach to BP’s business was born out of crisis but four years of practice set the stage for how BP would address climate change.
One unique partnership which supported
development of BP's
climate change position was embodied in a series of four environmental
forums in the U.S. and Europe. These closed, off-the-record meetings,
gathered feedback from environmental NGOs, and from experts on health,
safety, and environment on BP's environmental performance and targets
for improvement BP was represented by top executives in these meetings
that included, "Not just our friends but even Greenpeace." (9). Peter
Beadle says the forum provides the company with a repoprt card and they
do act on forum recommendations John Sawhill chairs the meetings in the
U.S. as a private citizen, not in his capacity as President of Nature
BP's Action Plan for Implementing it's Decision
BP pledges to seek solutions to the climate change challenge in four areas:
CONSERVATION. "We will seek continuous improvement in our own use of energy, and a better understanding of our CO2 emissions and how they can be controlled, including opportunities for CO2 sequestration. Additionally, we will encourage our customers, suppliers and partners to conserve energy."
Discussion of BP's Climate Change Action Agenda
BP was the first corporate sponsor of an ambitious research initiative to define a Global Energy Strategy to Address Climate Change. Battelle Northwest Laboratories has organized this effort that includes The Beijing Energy Research Institute, the U.S. Electric Power Research Institute, and ten other national and international research organizations. (11)
This three year program will "develop a technical strategy to expedite the development and diffusion of low-cost, low carbon emission technologies." The steps include assessment of current energy technology R&D trends and regional energy needs; projection of scenarios for the transition from carbon to non-carbon-based fuels; and definition of a policy and investment strategy for reducing emissions in the most cost-effective way.
While participation in this research will guide long-term strategic planning by BP, the company is increasing its near-term commitment to one particular technology, solar photovoltaic.
Browne has set a goal of tripling revenues from this business to a billion dollars in the next decade (a total larger than the present world market for PVs). Current plans call for adding annual capacity for manufacturing PVs yielding fifty megawatts by the end of the century. In his Stanford speech he announced that a new plant in Fairfield, California would be in production by years end, with an initial annual output of seven megawatts, growing to fifteen mgw.
For context, in 1996 the total world production of PVs was at ninety mgw. On the other hand a typical new fossil fuel plant produces 500 to 1000 megawatts of energy. Although one can not do a straight comparison of outputs from these sources, it is clear that the transition between them would require a massive investment in solar production capacity. This is one of the reasons participation in the Battelle-led technology strategy effort is important: to guide decisions on the timing of investments in alternative technologies.
Richard Sowter, former President of BP Solar America, said systems integration is a key source of competitive advantage for its solar products. BP delivers solar modules with thin film PVs, converters, and all components packaged in a ready to install system. He sees utility de-regulation and consumer incentives included in the Million Roof Solar Initiative announced by President Clinton (a part of the U.S. greenhouse gas reduction strategy) as important drivers for growth in demand and improvement in cost-competitiveness.
Browne broadly defines this as "doing the most effective things in the places where they have the greatest impact." In his Berlin speech he called for policy instruments that give corporations the flexibility needed to select the countries where they focus their emission reductions. This freedom enables them to act "where the marginal cost of such curbs is lowest, but where their marginal effect is greatest." He also suggests incentives for more rapid turnover of capital stock in order to retire outmoded and more polluting equipment.
Another example of BP's joint implementation is its partnership with the Nature Conservancy and American Electric Power to preserve rain forest in Bolivia. (The forest's absorption of CO2 offsets a portion of the releases from the company's operations and products.) BP intends to use this project to learn how to most effectively create such international partnerships. Some forest preservation programs to create offsets for CO2 emissions have resulted in simply moving deforestation to another area or have led to other unexpected consequences. The project will also seek to develop means of verifying emissions savings. "We want to get questions like this answered before getting involved in a large way that may actually be damaging."
BP's action agenda and overall proactive stance on climate change goes far beyond any major corporation except for the European re-insurance companies. It demonstrates a long-term strategic awareness that competitive advantage comes from proactively creating policy rather than attempting to slow the course of change.
However, there is another potential major business opportunity for BP. This is developing action steps to address the really critical source of greenhouse gases: BP's customers who burn its oil and gasoline products. The emissions from most forms of transportation and, in a much lesser way, from oil-burning power plants, far outweigh those directly generated by the company's operations. (BP estimates that transportation alone contributes twenty percent of greenhouse gases. In the U.S. the figure is closer to 30%.)
There are actions that an oil and chemical company committed to sustainability may take to impact its customers' greenhouse gas emissions. A few of the choices include:
BP's increased commitment to solar energy is one indication that it is already considering paths that could reconcile the tension between threatening its own future by serving long-term interests, and asking ‘what identity will best serve that long term interest.’ Peter Beadle, President of BP Solar America, said, "With his climate change speech, John Browne allows solar to be brought to the main table of BP. Previously there were just three businesses: oil, exploration, and chemicals. Now there are four. Solar will be developed to become one of the main products of our company. "
BP's solar strategy is a major step in its transition, however, Browne assumes that oil and gas will remain primary energy sources for decades. Both oil and coal-based energy companies could be faced with new realities that challenge such an assumption. One or more of the following scenarios could emerge long before their resource base is exhausted.
1. Alternative automobiles and buses with dramatically higher fuel efficiency and/or alternative fuels could be developed by entrepreneurs and brought to market much sooner than leading manufacturers now believe possible. Fuel cell technology or the Rocky Mountain Institute Hypercar design are two of the possible breakthroughs here.
2. Energy deregulation and privatization could open the door for similar technical/entrepreneurial innovations in the power industry. Renewable sources could become cost competitive with fossil sources sooner than now expected through systems integration, ending of subsidies for fossil fuels, and competitive forces replacing the monopoly status of utilities. On the other hand, deregulation may simply encourage fossil fuel use because coal in particular remains the lowest cost source.
3. Technical, environmental, and business breakthroughs in the petro-chemical and biotechnology industries could significantly increase the quantity and value of downstream products. This could support a shift to a strong conservation-based approach to resources in oil companies.
4. Non-linear effects in climate change could accelerate warming trends globally and/or regionally generating disastrous impacts on food production. This would be likely to lead to much stronger action to control emissions and phase out use of fossil fuels. (13)
5. The present increased concern for climate change by insurance and banking companies could become a consensus position that the risks of continued increases in greenhouse gases outweigh the economic risks of cutting them significantly. This position could be expressed through a combination of pressure on public policy, incentives and/or penalties to industry, and through direct investment in new technologies.
Are these completely unlikely scenarios? Perhaps, but a scenario for home computing that would have been very unlikely in 1978 has been realized during the next twenty years. The Internet and World Wide Web have revolutionized the way society works and lives through personal computing and communications. This globally networked explosion of information/communication capability is itself becoming the foundation for entrepreneurs in energy and transportation to develop products and gain competitive advantage with surprising speed, even on British Petroleum's turf.
It may be more likely that ". . . the oil industry is going to remain the world's predominant supplier of energy for the foreseeable future," as BP's Browne states. However, as Royal Dutch Shell has demonstrated through its scenario planning, any energy company can benefit from being prepared for the unlikely. (14)
From our interviews it appears that BP
seeks to be so prepared.
We asked Ken Blower, BP America's Director of Environment, Health and
Safety, if the now primarily petroleum-based company could adapt to
technological breakthroughs reducing demand for their oil products,
e.g. fuel cells as an energy source for transportation. According to
Blower, "If that's the
world we're facing, we'll adapt to it
and do a good job of serving our customers. Our business is providing
mobility. We want to catch the growing market where it occurs. If its
fuel cells, that's of interest to us. If we look at it that way, it
Will a company seriously threaten its own future on behalf of the planet? A quick reading of Browne’s speech implies as much. Carbon emissions are generally thought to be the primary source of global warming. Surely BP’s stance of accepting the global warming trend, a view currently out of step with other oil major companies, will eventually cost it in reduced revenues and profits. How can BP succeed as a growing profitable company by taking the side of the planet? After all, BP is a business, and the business of business is making money, right?
The answer, of
course, is “yes”
to the last question, but the
more complete answer depends on how a company makes its money, and on
what business model it uses. While many specific business models
exist for each industry, the core issue of how a company chooses to do
business is ultimately the question of whether it believes that VALUE
CREATES MONEY or whether it believes that MONEY CREATES VALUE as the
primary driving force of business. We call business models from the
first class of models Value-Based Models or VBM’s, and ones from the
second class are called a Money
Our position is that Money-Based Model’s are Clockwork Business Models of the industrial age which are not sustainable, and that Value-Based Models’s are sustainable but have not become widely used yet. The simple reasons for these conclusions are that MBM’s are all about optimization which “uses up” or consumes what is, while VBM’s are all about innovation or creating what does not yet exist. MBM's operate like closed systems and VBM's operate like open systems.
We see examples of VBM’s in the information technology marketplace like Netscape who gave away 40 million copies of its only product at the start of its business a few years ago. This is creativity driving value driving money, but Netscape had relatively little to lose. BP is a different story. BP has billions of dollars in retained earnings to lose and they are in an industrial-age industry where it is hard to create instant world value as an opening decision. …unless they go completely outside the box and seize leadership in addressing the very global problem that is so closely tied to products from their industry.
John Browne has done what complexity scientist, Stuart Kauffman, calls “penetrating the adjacent possible” Browne and the BP staff have stepped out of what exists in the world of oil company behavior (one competitor referred to BP’s decision this way: “Browne is talking out of church”) and crossed the conceptual boundary of what did not yet exist to grab an idea and bring it to life back into current reality. The idea is called, “let’s take the lead on this global warming problem”. This process is called innovation and it is what nature does all the time. This step by BP enlarged the possibilities for the planet and, at the same time, enlarged the possibilities for BP’s business.
It was a value-based business decision, but why do it now?
Understanding Environmental Leadership
In all of our interviews, Browne was characterized as an independent person who did not follow the crowd and who chose the timing of his decisions based on a clear look at the present from a position situated far into the future. We heard this from BP employees, NGO colleagues, and competitors. Ed Winterholt of BP Exploration put it this way, “John Browne is not reactive to anybody; he anticipates and then acts according to his own time table." A competitor offered this backhanded compliment: “Browne is very clever at giving up concessions in the present in order to win valuable gains in the future.”
It appears that BP is in the process of figuring out what its business will be in the 21st century and is making this decision by networking and partnering with all parts of the value chain associated with its oil products.
BP’s new direction is a big step in transitioning the company to a values-based business model, though only time and events will say how far BP’s journey will take the company. A new corporate trend began in 1990 when the insurance industry responded to business survival issues thought to be caused by the force of global warming. This force next took aim at the oil industry as potentially next in line to be hit with industry survival issues, as they faced questions of responsibility for climate change. An environmental issue opened the door for Browne’s speech this year and with it, BP has effectively acknowledged that the future of the planet and that of BP (and other companies, by implication) are co-mingled. The well-being of one affects that of the other. In this sense, BP is certainly not threatening its future to save the planet but rather changing its relationship with the planet. The question is, what kind of relationship will BP forge with the planet?
Implications of BP’s Decision for CEO’s and Environmental Managers
The import of BP's actions are being studied by corporations and other stakeholders throughout the world. During a recent interview, John Sawhill, the president of the Nature Conservancy, said, “a lot of people are reading Browne’s speech in board rooms…he has heard from a lot of companies…the speech is being read in a very positive sense.” But more important than the decision announced in Browne’s May 19th speech, are his actions since then that will create pressure on other companies to do their part. In a September 1997 speech given by Browne in Berlin, he announced that beginning in 1998, BP will begin to voluntarily measure and seek ways to limit the greenhouse gases it pumps into the air. Browne said,
“For too long
this been an issue
on which few were prepared to
accept responsibility. The oil industry has the ability and the
responsibility both to contribute to the debate…and to take a
leadership position by showing that we, ourselves, can make a
constructive contribution to the solution.”
The impact on other CEO’s and
Environmental Managers to
match Browne’s ante inside their own companies for controlling the
green house emissions will be tough enough. But Browne’s action
agenda goes further to impact society outside the oil industry.
Browne called for stronger economic incentives to encourage companies
to play more important roles in protecting the environment. He
said that incentives such as taxes on energy or the use of licenses for
harmful materials could force firms to reduce environmentally harmful
products. These suggestions and more were part of a statement
introduced by Browne called Climate Change Principles. These principles
No one can know the final impact of all this activity. But one thing seems certain: a sea change has started in corporate attitudes toward the relationship between the environment and business.It began with the European re-insurance companies commitment to action on climate change and now they are joined by BP and Browne. From a business point-of-view, the word "environment" has never represented anything positive and tangible that people could want and could buy like “transportation” and “energy”. Rather, the benefit of environmental improvements derived from getting rid of something “bad” that people did not want. Environment has been seen mostly as a negative to businesses, something businesses were forced to spend money on to keep something bad from happening to the environment.
Now the boundary that defines that “environment” has become the corporate boundary, first, of the insurance industry and now of the oil industry. That something “bad” is their potential extinction as a business enterprise. As Winston Churchill once said, “the thought of impending doom focuses the mind wonderfully.” If this heroic act of strategic self preservation succeeds, BP will not only have influenced many companies to conduct their business in a more environmental friendly manner, but BP would have transformed itself into a growing, sustainable Living Company whether it meant to or not. This corporate transformation may be the greatest legacy of BP’s decision.
It appears that
BP —with Browne
at the wheel —will have a global
impact on how business is done with respect to addressing climate
problems. It looks like the climate will change for just about
The major update
to this article
is the actual behavior of the
global climate over the years since it was written and the continually
more compelling research that climate change is real and is having
major impacts. Worldwatch and the German
re-insurance company, Munich Re, report that floods, fires, droughts,
hurricanes, and typhoons have cost a record $89B during 1998. This is
48% higher than the previous record, set in 1996. They estimate that
1998 climate-related events have killed 32,000 people and displaced
over 300 million.
Public pressure on the corporate world will not wait for firm proof that such disasters are "caused by climate change". Other major corporations are adopting a more moderate position on climate in anticipation of such pressure. The business consensus that climate change is unproven and does not require action is breaking apart.
A dozen other
corporations have joined BP as
advisors to the Pew Center on Global Climate Change, a nonprofit
research group funded by Pew Charitable Trusts.
Sound Business is a
web site of World Resources
Institute set up in partnership with BP, General Motors, and
In the Summer of
announced plans to acquire the US oil
company, Amoco. This purchase increased BP's oil reserves
and US markets. Presumably it will also extend the company's climate
change action strategy to Amoco operations and enable BP Solar
to extend its markets through the Amoco/Enron Solar operation.
As we discuss above, the next major breakthrough required in corporate action is for companies in the oil and automotive industries to get serious about the greenhouse gas emissions of their customers. It is not enough for them to reduce the emissions of their extraction, refinining, and manufacturing operations.
President of BP
1 Browne, John. 1997. "Where BP
Stands On Global Climate
Change", address at Stanford University, May 19.
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