Activist Investor Elliott Challenges BP's Net Zero Pledge

BP is facing mounting pressure from activist hedge fund Elliott Investment Management, which has built a stake in the British oil major and is pushing for significant changes. The US-based fund is expected to outline its criticism and proposed remedies in a letter to shareholders, following a pattern seen in its previous activist campaigns.

Elliott's involvement in BP comes as the company struggles with underperformance relative to its US rivals and country mate Shell. Under former CEO Bernard Looney, BP set out an ambitious plan to pivot to clean energy and reach net zero by 2050. However, this strategy has failed to pay off, and the company is expected to announce a more than 55% drop in quarterly underlying profits on Tuesday.

Analysts suggest that Elliott is likely to lobby for BP to scrap its net zero plans and focus on oil and gas production instead. The activist fund has successfully campaigned for change at some of the biggest companies in the world, including Starbucks and BHP, and led a successful campaign last year that saw industrial giant Honeywell split up into three separate companies.

BP's new CEO Murray Auchincloss has already softened some of his predecessor's net zero plans, including cutting the fossil fuel reduction goal from 40% to 25% by 2030. Reports suggest that BP could scrap the goal altogether, though Auchincloss has not confirmed that.

The activist landscape has seen a surge in campaigns in recent years, with 2022 being a record-breaking year for shareholder activism. In the first quarter of 2023, 69 new activist campaigns were started globally, with Europe seeing the lion's share of new campaigns this year. The growth of private credit, involving non-bank financial institutions providing credit to businesses and consumers, has also raised concerns about financial stability.

The Bank of England has introduced two innovative tools to address these challenges: the System Wide Exploratory Scenario (SWES) exercise and the Contingent NBFI Repo Facility (CNRF). The SWES exercise is a new form of stress test tool that allows the Bank of England to assess the resilience of the financial system under various scenarios, including those involving non-banks. The CNRF is a new contingent liquidity facility for some non-banks, which provides them with access to central bank liquidity in times of stress.

In conclusion, activist investor Elliott's involvement in BP highlights the growing influence of shareholder activism in the energy sector. The Bank of England's innovations in addressing financial stability risks, including the SWES and CNRF, demonstrate the central bank's commitment to adapting to a changing market landscape. As BP faces pressure to scrap its net zero plans, the company must navigate the delicate balance between addressing shareholder demands and maintaining its long-term sustainability goals.