In the future I expect to work in the strategy team of an international oil company (IOC) like

BP. The world is speeding up its transition towards cleaner energy and net zero operations,

decreasing carbon dioxide emissions. Through various pledges such as the Paris agreement,

social consciousness to decrease oil and gas (O&G) use, and political pressure, a challenge I

will face is framing BP’s strategy in this changing world. Traditionally, its O&G business has

provided good returns, and a steady dividend. Thus, BP needs to balance returning value to

its stakeholders through its traditional business, and taking part of this energy transition. It is

here where my challenge lies. The action I would take is frame BP’s strategy to take part in

the energy transition, using its O&G profits to finance its renewable energy business over

time. This decision is driven by both an ethical and business strategy point of view,

considering the benefits of a sustainable business, while acknowledging the ethical challenges

that weigh on it.

First consider the sustainability of the business. Sustainable business have shown to be more

profitable in the long run than their less sustainable counterparts and I believe this is also true

for BP. By choosing to slowly decrease BP’s presence in oil and gas, and start investing in

renewables I think BP will remain profitable in the long run creating further value. This is

firstly because of the market it is entering. While O&G consumption is decreasing, the

demand for renewables is growing at a much faster rate than that of fossil fuels, as customers

become more environmentally conscious. Entering this market will allow BP to diversify its

customers. For example, investment in electrical charging points will give BP access to the

rapidly growing market of electrical vehicles. Capitalizing on this market growth will

increase revenues. As O&G demand remains robust in the years to come, by still remaining

in this market BP will continue to obtain considerable profits, and use this to invest into

renewable business, adapting investment rate as demand for renewable energy changes.

However, there are issues that constrain this decision. First of all, BP had previously tried to

enter the renewable market in 2000 eventually shutting down its solar business in 2010. This
will create a mistrust between this new customer segment and the company. It is likely

customers will not believe BP is in this for the long run, or may view this as a move solely

focused on profits rather than helping the world. Furthermore, by diversifying into this

market there will also be mistrust between BP’s current shareholders. Many shareholders

choose IOC’s because of their dividends and high returns of O&G projects. So far O&G

projects deliver greater returns than renewable projects. Thus investors may have mistrust

that this new business model will not deliver the returns as promise. Indeed, there may be a

belief that the company is spreading itself too thin across the whole energy value chain

resulting in lower returns. This may decrease BP share price, or create blocks when trying to

delve into new business. It will be important to manage this mistrust. For instance, BP can

employ an advertisement campaign showing the green projects, joint ventures and

acquisitions in the renewable space. This will have to be transparent and specific to avoid

being labelled as ‘green-washing’. Transparency through a clear strategy of the projects it is

investing, the expected returns and risks, and engaging stake holders will help appease

investors and build trust that the company will profit in this new market.

This also leads to a big ethical issue in the accounting process of new investments. Internal

and external accountants will have access to a lot of confidential information, such as

investments in the renewable space and divestments of O&G fields. Ethical issues will arise

through confidentiality issues or leveraging the in-depth financial situation for insider trading.

Furthermore, this accounting issue can further exacerbate mistrust issues within the company.

As BP operates across the energy value chain, over time the plan would be for the O&G

business to become less prominent than the renewable business. This will likely create

cultural clashes within the business. Over time oil fields, and their associated workers will be

divested and sold. This will create mistrust within the company divisions and provide

accountants first hand access to such scenarios. To manage this again high transparency will

be needed to avoid mismatches of information. At times this will not be possible and is an
issue to the strategy. One of the five barriers to ethical organizations that hence will always

need to be considered is indirect blindness. When handing accounts to external auditors, there

must always be an acknowledgment that it can create unethical behaviours as described

above. Managers will have to actively manage and monitor even small ethical divergences as

to avoid the ‘slippery slope’ i.e. a snowballing effect of unethical decisions within the

accounting process.

Another aspect of the sustainable business that will create ethical issues are the company

finances. As mentioned before, by entering this market BP will remain profitable. It will be

diversifying its product mix, increasing its revenue streams providing a buffer when oil prices

remain low. Furthermore, it will also have a first mover advantage. The other IOC’s,

specially the North American ones, have been slow at investing in the renewable space. This

is a market with high entry barriers such as high fix costs and technical expertise. By setting a

foot space in a fast growing market, BP can become a market leader through the whole

energy value chain. This will allow it to have an edge over competitors who are limited to

either the renewable or O&G space, and possibly to charge premium prices for renewable

energy. Thus this benefits will show within accounting statements. Additional profitability

levers are synergies. BP has vast experience in managing and developing multimillion dollar

projects. This experience will serve in addressing the engineering issues of the renewable

energy transition. Costs synergies that will drive profits also exist: labour could be cross-

trained across the industries and existing downstream plants and equipment could potentially

be used in renewable power generation.

This, however, means that the accounting statements can be altered unethically to portray the

wanted financial snapshot of an asset to justify a decision. Firstly, oil reserves and assets

values can be altered to the benefit of explaining why they have been divested. The overall

goal will be to transition BP into a clean energy business. Thus, there may be pressure to

change the financial snapshot of O&G assets to divest them, and enhance renewable projects
returns. This is further exacerbated by three of the five barriers to an ethical organization.

First, motivated blindness means I may be tempted to overlook alterations to finances of

O&G assets to explain why they should be divested. Clearly, this will be in my interest, to

help speed the transition and show why the strategy is pertinent. Overvaluing outcomes also

influences this. We may be more willing to break the rules because the final goal, a shift

towards a greener world, is good and hence we may believe the end goal justifies the means.

And then if this sort of behaviour starts, it may snowball! For instance, say the accounts of

reserves for an asset are slightly altered to help appease an investor on why it should be

divested. While unethical, because of the ethical blind spots from before we ‘justify’ this

behaviour. It will be much easier to then continue down this slippery slope as we are less able

to see this unethical behaviour because it develops gradually. It will be important to avoid

this issues. The first way to do this is to eliminate the first barrier to unethical organizations;

ill-conceived goals. If we frame BP goals as transitioning towards renewable at whichever

stake, it is likely that this will incite unconscious unethical behaviour. Workers, accountants,

and even me, will likely feel pressured to adjust decisions such as accounting statements or

financial evaluations to help drive this goal. Thus it is necessary to clearly brainstorm

unintended consequences of placing the strategic decision described previously, and to

describe it in a way that ethical decisions are not compromised. This pre-planning for ethical

dilemmas can then feed into creating systems to keep ethics at top of mind. For instance there

may be a set of guidelines to ensure accurate representation of projects finances and

accounting, irrespective of whether it is O&G or renewable related.

As BP transitions into this space it will have trade-offs such as lack of shareholder approval

and costs of investments. The latter, compounded by the decrease of oil demand and thus

decreasing revenues, may put pressure on the stock price. If there is downward pressure from

shareholders because of the business strategy, there will be internal pressure to not adopt the

transition. Indeed this may create an ethical issue; I would know that the strategy plan is
responsible business but would feel pressure from shareholders with a short term investment

horizon to not adopt it. However, while this is certainly an issue that will weigh in how easy

it is to adopt this decision, I still feel it is valid. I will try to leverage the increasing

prominence of ESG accounting to address this, allowing BP to more accurately reflect its

value. For instance, as the company becomes efficient in its energy usage, waste and natural

resources conservation, it will shine in the environmental criteria. This criteria will highlight

BP’s ability in addressing and managing environmental risks. Furthermore, BP would also do

well in social criteria’s. Increasing sustainability will increase BP human capital by

embellishing its brand and attracting a more diverse workforce. This will address issues of

scarcity of skilled employees which could damage the company ability to provide value in the

long run. Furthermore, as consumer preferences change towards renewables the demand for

its O&G market will shrink, exacerbated by rising boycotts and strikes as seen with

environmentally conscious movements. This will obviously be abated by shifting it product

mix towards renewables, captured through ESG accounting. Nevertheless, while this helps

address a big ethical challenge in my decision, it poses an ethical challenge within itself.

Again, by the overvaluing outcomes barrier to ethical organizations, as the final outcome of

this responsible business is good, there is a possibility of unethical accounting practices.

External auditors may feel pressure to embellish ESG accounts to help justify BP’s decisions.

Again, the slippery slope barrier can easily create a snow balling effect with unethical

behaviour such as small changes to ESG accounts developing gradually. Furthermore such

actions will completely destroy the trust BP needs to be successful. It must be transparent and

accurately portray its finances to all stakeholders. Shareholders need to trust BP, to continue

financing its operations and be engaged in the strategy, while stakeholders such as workers

need to trust the company as well to create a culture that lives the company’s strategy. Hence

it is crucial BP doesn’t fall in the ill-conceived goals trap. ESG accounting must portray

accurately the companies new business model value. Transparency to all shareholders,

systems to check accurate financial portrayal and being alert even for trivial unethical
behaviours and quickly addressing these will be crucial. Only through this will the trust and

culture across all stakeholders, necessary to build this strategy and embed sustainability

across the firm will be possible.