Oil and mining companies must reevaluate their goals for low-carbon technologies while also achieving financial targets and stakeholder expectations, according to Fuelling Change, a new Horizons report from Wood Mackenzie on Thursday.
Tom Ellacott, senior vice president of corporate research for Wood Mackenzie, underlined the need for a recalibration of current risks and rewards for investment in low-carbon technologies, as well as new incentives from both government stakeholders and financial institutions.
Given the complacency that has taken hold, he noted that ‘in the last year, energy security has trumped sustainability and companies too have benefited from recent commodity prices and margins to deliver record cash flow.’
‘There’s no one answer, but smart oil and gas and natural resources companies will realize that protecting the status quo would be a mistake and start to manage their portfolios to reflect a balanced approach to managing legacy output and carbon management,’ he said.
He argued that it is possible to be on track with low-carbon goals while also achieving capital discipline.
The report recommends that companies address this complex dynamic and achieve this balance in three key ways:
- By nurturing legacy cash cows while simultaneously shifting to a transition-growth mindset,
- Incorporating transition risks and rewards into differentiated investment hurdle rates
- Using new business models to enable growth and close valuation discounts
‘There are different horses for different courses, depending on a company’s scale, portfolio make-up, geographic focus and legacy skillset,’ he said.
A balanced, disciplined, transition-focused investment approach could also grow corporate cash flows sustainably, boosting company valuations, he added.
