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[Ed. note: ESG in the News will be published tomorrow.]

Paris-based oil and gas company TotalEnergies tried to give itself a makeover back in 2021, changing its name to reflect a “switch of the company’s strategy to becoming a broad energy business focused on the production and supply of clean energy,” according to an article about the change in Energy Live News at the time. That was two years ago – a time when oil was anathema in the investment world and companies worked to convince investors and stakeholders they were moving away from fossil fuels. Oh, how things have changed.

Last week, I wrote about Shell, BP, Chevron and Exxon getting back to their core business of oil and gas exploration, production and refining. Those changes were pretty obvious and explicit. In contrast, TotalEnergies recently did something a bit different and perhaps rather subtle.

Before I get into that, let’s review what happened at their 2023 AGM held in Paris on May 26. Reuters covered it here, but high points include:

  • The company rejected a shareholder proposal “urging faster cuts to the oil major’s greenhouse gas emissions program”;
  • Police had to use pepper spray to stop disruptions by climate protesters;
  • AGM attendees were forced to place their cellphones in “sealed satchels” for the meeting;
  • The country’s Energy Minister said “oil and gas companies needed to ‘re-invent themselves’ and would have no future unless they could map a path out of fossil fuels”; and
  • The approved climate plan (with 88.76% of votes) focuses on emissions reductions from gases at “its directly-owned facilities and not covering Scope 3”.

Seems like fodder for a new Netflix movie. With that background, TotalEnergies sold most of its venture capital stakes in 20 climate tech and clean tech startups to a private impact fund last week. The company started the fund internally in 2019 for investments in climate venture and “technologies or innovative solutions [that] could contribute to [global] carbon neutrality.” These investments are now being offloaded to an impact venture capital firm named Aster. New Private Markets quoted a partner from Aster about why TotalEnergies chose to make this move:

“The economic context, combined with the cyclicality of venture capital investments, create opportunities [for Aster] to take over minority positions held directly by players wishing to reposition themselves on their core activities.”  

Most of that sentence is heavy corporate-speak blah-blah, but the last eight words are what is telling – “wishing to reposition themselves on their core activities.” To steal from Amadeus (one of my all-time favorite movies) – “there it is.”

What This Means

TotalEnergy’s sale of its climate venture investments does not really mean anything at a practical or operational level in my opinion. However, it is another clear signal that oil and gas companies believe there is still a strong argument for staying true to their core business. As more oil and gas companies revert back to their core business, opportunities decrease for other companies to find alternative fuels, adapt to them and meet climate commitments.

  • Investment managers may be challenged to balance ESG strategies with potential market outperformance by these companies (as we saw last year) in the next 2-5 years.
  • Private equity may find themselves doing a very rapid 180: selling oil and gas assets back to companies that sold them only a couple years ago, while acquiring more climate/new fuel tech investments – perhaps from those same oil and gas companies.
  • Operating companies may not achieve emission reductions that are planned to come from energy companies aggressively developing low-carbon and alternative fuels.

As I said just last week:

“There is a climate domino effect – businesses establish their own climate goals, expectations, plans and metrics based in some part on where they sit in the supply chain. Changes by those upstream and/or downstream impact production/demand, fuel/power needs, mix and availability for production and transportation and the timing of changes that require investment and adaptation.”

The bottom line here is that climate goals or assumptions need to be revisited and reevaluated on at least an annual basis given how rapidly global energy markets and economic uncertainty are progressing. And it may get harder to determine exactly what energy companies are doing, who is taking over from them and how that may impact timing of new solutions coming to market.

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The Editor

Lawrence Heim has been practicing in the field of ESG management for almost 40 years. He began his career as a legal assistant in the Environmental Practice of Vinson & Elkins working for a partner who is nationally recognized and an adjunct professor of environmental law at the University of Texas Law School. He moved into technical environmental consulting with ENSR Consulting & Engineering at the height of environmental regulatory development, working across a range of disciplines. He was one… View Profile