Market Update 3rd March 2025

Taking an active interest

Last week brought an update from BP. That fact is not particularly newsworthy, on the face of it at least. But in this case, it has several layers of intriguing subtext.

Under Bernard Looney, BP was very much aligned with being ‘Beyond Petroleum’. However, in 2023 he was unceremoniously sent to Coventry, which was the first indication that BP may reshape its investment spending. The new strategy announced last week has upstream exploration and production investments rising to c$10bn a year, from around $8.5bn. That’s largely being funded by a sharp cut in renewables investments. Rather than targeting around $7bn of spend on transition technologies, BP is now planning on spending just $1.5-2.0bn a year.

It is always useful to put numbers of such magnitude in context. The amount cut from BPs renewables budget is enough to kit out c200,000 houses in England a year (including all those in the CV postcode area) with a brand spanking new heat pump, solar panel system, as well as decent battery storage. That’s assuming a £20,000 per dwelling budget (and no subsidies).

While BP is of course responsible for its own actions, the change appears strongly influenced by an activist house. In this case, the protagonist is Elliott Investment Management, one of the world’s largest activist funds. The temptation here is to cry foul. The narrative that little ol’Blighty is being strongarmed by ruthless Americans is tempting, and easily spun. The lowly valuation that BP and other UK businesses trade on do indeed make them vulnerable to such activism, but we shouldn’t forget that a previous example of activism in the sector saw American giant Exxon come under attack.

It’s also easy to say activists will always push companies away from sustainability and encourage the pursuit of short-termism. That’s not true either. The attack on Exxon was about its reluctance to take green energy more seriously. In 2023 there were hundreds of shareholder proposals asking companies to address environmental, social and governance (ESG) issues, according to Proxy Preview. There are still a significant number of investors asking companies to do more, but as I have written previously in this column, there are an increasing number of examples of companies ditching ESG policies – most notably rowing back from environmental and social policies. I would not be surprised to see a decrease in the number of ESG resolutions brought forward to AGMs this year.

This shows how is it usually prevailing market conditions that dictates the direction of activists. When there is a premium to be earned by committing to ESG actions, as there was in the early part of this decade, there will be, unsurprisingly, greater force behind ESG activism. With many sustainable leaders having seen shares fall sharply, the boot is now firmly on the other foot. The argument at BP becomes about how upstream investments have a better payoff than many of those in new technologies.

In general, an activist shareholder tends to improve a company’s stock price during its campaigns—and sustains those gains after the campaign is announced. It is far too early to say if that will be the case at BP. In fact, the word on the street is Elliott may continue to pressure BP to go further and announce more changes. Time will tell how this one plays out.

On thing is for sure, though. Whether you think the groups concerned are impatient agitators, or vigilantes with valid causes, activism is not going anywhere. Its methodology is too closely tied to the ‘one vote, one voice’ democracy of the stock market. Speaking of which – it is worth remembering that activists don’t always get what they want. Note how Saba departed from the UK investment trust space with its tail between its legs after failing to win the votes it instigated.

Perhaps a timely reminder then, that neither existing management teams, nor gallivanting activists fully hold sway. The real power remains with shareholders.

George Salmon – Senior Research Analyst

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