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BHP looks to Elon Musk to enhance its environmental credentials

The pace of environmental pressure from voters, governments and shareholders has gatecrashed any board’s ability to have unfettered decision making about profiting from fossil fuels.

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Who would have anticipated even two years ago that in the space of a month this year shareholders would mount something of a coup at three of the world’s biggest oil companies.

At America’s $350 billion giant ExxonMobil, activist investors ousted three directors deemed out of step with necessary climate action and installed green-leaning replacements. The same day Chevron shareholders defied the board and supported demands for the company to take account of its customers’ carbon emissions footprint.

In Europe, a Dutch court ruled in favour of environmental groups in forcing Shell to commit to a vastly stronger decarbonisation plan by 2030.

BHP has talked up the earnings potential of its shrinking oil and gas division, but may be looking to sell out.

BHP has talked up the earnings potential of its shrinking oil and gas division, but may be looking to sell out.

BHP can retain these assets, some of which are in Australia but most of which are in the US, until they are naturally depleted or they can sell them (or demerge them) over the next couple of years.

There are some shareholders who are happy for the Big Australian to be in oil – but an increasing number are not.

If BHP waits ten years the value of the oil and gas assets will have diminished. Already there are question marks about how many buyers would be capable of raising say $15 billion to invest in the Gulf of Mexico oil fields.

Arguably this decision should have been made five years ago when BHP was facing the blowtorch from activist shareholder Elliott which was pushing the sale of oil and gas.

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BHP has the luxury of having a diversified mix of commodities and an earnings engine room in iron ore.

This will provide it some cover from environmental activism for a while at least. The gravity defying price of iron ore and the river of dividends that it produces will also keep shareholders rich and happy – and possibly distracted.

Unlike the large pure play oil and gas companies, BHP can sell these assets rather than being forced to grapple with an expensive and technologically difficult transition to reduce carbonisation.

But it is impossible to ignore the fact that there is a growing list of institutional shareholders that are unable or unwilling to invest in a company with fossil fuel assets.

For its part, BHP is plugging away in its efforts to reduce emissions and establish some green credentials. Its chairman Ken MacKenzie told retail investors a few months back that BHP is uniquely placed to support the decarbonisation challenge.

The oversized announcement on BHP supplying nickel to Tesla contained no detail – the size and value of the contract absent from the statement. But it said plenty about the resources heavyweight’s confidence in the deal generating long-term value.

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