Green finance has hit a tipping point. If the market cannot make it work, and quickly, it will be nothing more than a platitude for finance professionals to talk about while the world burns.
Oil major BP’s lacklustre results on Tuesday could be the final nail in the coffin for any hope that green finance can make a meaningful difference in the battle against climate change.
Income at the company fell to $8.9bn in 2024, well below the $13.8bn from a year earlier.
This had led to some soul searching at BP, with chief executive officer Murray Auchincloss saying alongside the results that the company plans to “fundamentally reset” its strategy.
This has been widely taken to mean a watering down or abandonment of BP’s energy transition plans, in line with moves made by some rivals.
Best laid plans
In 2020, the company said it would generate 50GW through renewables by 2030, a far cry from the 4GW installed as of the end of 2024.
If BP’s recent approach to sustainability is anything to go by, this goal is almost certainly on the chopping block.
Last year, the company put its US wind business, Wind Energy, up for sale and, when Auchincloss came into the top job, put a pause on new wind projects to put more emphasis on BP’s core fossil fuel business.
Six months later, the company moved $1.8bn of wind assets into a joint venture with Japan’s Jera, separate from its main business.
Investors will know more on February 26, when BP holds a capital markets day.
The green finance market is already facing a crisis from Donald Trump’s return to the White House.
Trump's stance is virulently anti-green, and he has already signed a raft of executive orders reversing the US’s transition towards more renewable processes.
Most recently, on Tuesday Trump signed an order bringing plastic drinking straws back into government use over paper equivalents.
No going back
For the green finance market, the troubles faced now are nothing short of cataclysmic.
It is the worst polluters that need to be on board to make the big changes that green finance professes to champion. Financing a wind farm company might feel nice and green, but it will do little to change the outcome of a warming world if oil companies are rejecting change.
Their U-turn back towards burning fossil fuels shows that the sustainable finance movement has failed to make a real impact where it matters.
And sustainable finance has the means to make an impact. BP had $23bn in net debt at the end of last year. Fixed income investors have a loud voice they could have used to influence the company, but failed to make use of it in the right way.
This existential problem for the capital markets could be used as a tool to spark innovation in green finance — particularly in making it more palatable to US investors in the same way Europe has embraced it.
But with BP expected to row back hard against its energy transition plans, this innovation needs to happen quickly — or the major companies that need to change their approach will be too far entrenched in the old direction for any amount of sustainable finance influence to make a difference.