♟Welcome to The Geopolitics of Business Newsletter
🌎 Welcome to the Geopolitics of Business Newsletter, where I'll be sharing frank discussions with the world’s leading investors, CEOs and politicians about navigating our ever-changing global landscape.
📝 I'm Sam Gyimah. Throughout my life I’ve had a foot in both business and politics - as an investment banker and entrepreneur, lawmaker and UK Government Minister, and now as advisor to leading global financial institutions. Each week I'll explore topics such as shifting power blocs, rapidly advancing technology, de-globalisation, the end of free money, polarisation and climate action, and what it means for business.
💫 Hit subscribe and join me as I seek to understand the interplay between global business, geopolitics and how we can work together for a brighter future.
Navigating the Transition to Renewable Energy: Insights from Lord John Browne
Recently I had the honour of sitting down with Lord John Browne, former CEO of BP and current chair of #BeyondNetZero to discuss the transition from oil and gas to renewable energy.
Lord Browne delved into the geopolitical landscape of energy, the role of government policies, and the challenges and opportunities in financing the climate transition. Exploring questions including:
💡 Here are four insights from our conversation:
1️⃣ The Importance of Environmental Awareness:
Lord Browne's journey towards renewable energy began with his early career experiences in Alaska, where he witnessed the environmental impact of oil and gas operations on fragile ecosystems. This realisation stayed with him throughout his career and influenced his decision to prioritise environmental stewardship when he became CEO of BP.
2️⃣ Geopolitical Landscape and Energy Security:
Lord Browne discussed the impact of geopolitical shifts, such as Russia's invasion of Ukraine, on the energy landscape. He highlighted the importance of energy security and the need for diversified energy sources to mitigate risks. Changing dynamics influence the development of renewable energy and alternative energy imports, "changing the energy map."
3️⃣ Unlocking Capital for the Climate Transition:
Lord Browne acknowledged the need for significant investment in the climate transition and the challenges of financing. He emphasised the importance of public-private partnerships and consistent public policies to unlock capital. The Inflation Reduction Act in the United States was cited as a template for mobilising investment, but Lord Browne also recognised the need for tailored approaches in different countries and regions.
4️⃣ Leadership and the Role of Governments:
Lord Browne shared that leadership in the climate transition would primarily come from national policies and regulations. While global cooperation is essential, there is no central authority that can solve the complex challenges of the transition. Each nation must take responsibility for its own targets and actions, with a focus on long-term growth and collaboration. Governments must implement the necessary policy frameworks; businesses deliver cleaner goods and this will inevitably flow into consumer behaviour.
You can listen to our chat on The Geopolitics of Business Podcast, or scroll down if you’d prefer to read the full conversation.
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Thank you for your support, and I look forward to sharing more thought-provoking conversations with you in the future.
Sam
Q&A with Lord John Browne
Sam: You were involved with BP for over three decades before you took up the job as CEO in 1995 and I've been wondering whether there was any particular experience you had over those years that made you think BP, the oil major, which was very much your invention, your creation, could become a leader in renewable energy?
Lord Browne: I started my career in Alaska, working 200 miles north of the Arctic Circle. And one thing I did observe was how if you didn't treat the tundra very well, you left permanent scars. When I was working there in the late sixties, people didn't understand the environment and they just used it. And it was very clear that when people ran willy-nilly over the tundra, they left scars that made lakes, and the lakes never went away. And I remembered that. And I said to myself, I think we need to be very careful what we do here, because we could, of course, waterlog the entire place and destroy the fragile covering of the earth. So that one thing stuck with me for a long time when I became CEO.
It was very clear that there has to be something that we needed to do as an oil and gas industry because something was going on with the world's climate.
Sam: Was there a particular moment that crystallised this sense?
Lord Browne: Well, I think the Rio summit. After the Rio summer, people said, well, we ought to say something about being an environmental leader or the leader of a group of leaders. And there was very much a debate about how one defines that. And when I became CEO, I said, we need to cut through this and we need to look at what people think today. And Sir John Houghton, who was the then the late John Houghton, who was the Director of the Meteorological Office, was someone that I got to know. And I said to him, perhaps we could discuss with you and with other experts about what you thought was happening to the world and its climate and the atmosphere.
Sam: It's very much a discussion based on science.
Lord Browne: Yes. Well, BP is an engineering company - a science based company. And we had a lot of geoscientists as well. And geosciences better understand the world. So we had a big debate. We had a lot of people come in and talk to us. We sent emissaries to various places to find out what people were doing and we realised that on the balance of probability we were doing something that wasn't very good and we had to do something about it. Namely, we were adding greenhouse gasses to the atmosphere, which was changing the way in which the dynamics of the world were working. And it was almost like a very finely balanced scale, you know, where it's in perfect balance, but you put a feather on one side and it tips. And that was what humans were doing. They were balancing the world and creating an excess flow of greenhouse gasses.
Sam: It's very interesting. How do you characterize the current geopolitical landscape for energy in a world where we're seeing greater fragmentation shifts in power blocs but also great polarisation?
Lord Browne I think everything changes and nothing changes. I mean, there's been a lot of fragmentation. There's always, I think, been in people's minds when you do business, the relationships are never completely secure. So today, the big change was, of course, the unwarranted war in Ukraine and the impact on the world's relationships with Russia. It changed a lot of things because Europe, of course, as everybody knows, became, and in particular Germany became, very dependent on Russian natural gas and Russian oil being one of the big three producers of the world was an essential part of the oil market. So costs went up very quickly. An impact on affordability for many, many populations, which caused him real concern for incumbent politicians and a real understanding that actually security is a big important factor. And we've forgotten that.
I remember when I was in the industry, we always had to keep certain levels of stocks because of security that went away. That was we had gas storage that was sold because people said it wasn't profitable to keep. And of course, nobody was paying for the security. And as a result, that which was in private hands was either shut down or sold. So it reminded us that security's there. Affordability was very important, and it changed the scene for the way in which the sources of energy were developed. So that was good for non-hydrocarbon energy, renewables, for example, and for nuclear power in some parts of the world.
But equally it allowed massive imports of natural gas from elsewhere, notably America, which had a big surplus of gas. So it changed the energy map a lot.
Sam: Can you have security and affordability and reliable energy all at the same time?
Lord Browne: It's very difficult to achieve. Of course you can. But then there is a cost. And the question is which bit is picked up by individuals, which is picked up by companies? And importantly, which bit is picked up by the public purse because the security of a nation is very much in the hands of the government rather than individual companies or individuals. So there is a cost to all this and a cost which is actually unavoidable. The question then is: how do you find the money to pay for it?
But if you make this even more obvious, there's a cost also to make sure that it's green, that it's clean, and that you don't make adverse choices. And this requires long term thinking. Which is often absent. And it requires thinking about the interrelationship between all these factors because changing one thing may have adverse consequences.
I was struck by the fact that if you tell people to reduce their level of beef consumption because cows produce methane, you may well find that all you've done is because there's no manure left. You've had to import more non-green fertiliser. So you have to be very careful about these trade offs. That's not always the case. But the same is true with energy.
Sam: If you could just for a second, take me into the room where you did the deal to access Russian oil, what was the conversation like?
Lord Browne: I started by taking BP into Russia with a very small step, half of $500 million, which sounds like a lot of money. But in the grand scale of oil and gas, it's not huge. And I went to the board and said, we're going to buy a piece of a company. So it's a complete risk and they said we have to do it because Russia's so big. So we bought this company and indeed we were squeezed by incumbent interests to the point where we probably lost 60% of the money. We found out that they were squeezing us.
Sam: In the courts?
Lord Browne: Well actually, geopolitically. It turned out that the people who are squeezing us by our special bankruptcy of subsidiaries and paying for them were using money which they obtained from the EXIM Bank in the United States through another route. So I decided with my team that we'd simply go and cut the source of money off. So it went to the EXIM Bank. We went to the Senate, we went to the House, and we stopped the finance. And then we noticed something happened. Surprise, surprise. And so the incumbent interests came to see us and said: Could we do a deal? And I actually said to them, I don't want to speak to you.
And so for a year, nothing happened until they managed to get through to the Chief Rabbi in Moscow, who spoke to my dear late Mother, who persuaded me that these were quite good people. Maybe I should at least have a conversation with them. So I did, which was a very bizarre way of getting things done. So we had a conversation and we made a deal which wrapped up this other company that we bought and some of the other assets we had in Russia. And we produced something 50-50 between BP and Russian interests. And at that moment, as we were doing it, we came to the attention of Mr. Putin, who asked to see me. And that was my second meeting with him.
Sam: I'm intrigued by that conversation…
Lord Browne: And that conversation was, well, I'm very interested you’re bringing all this management and technology, which we were and finance, but you can't have 50%. You've got to have 49%. And I said, No, Mr. Putin, I would like 51%, but I can't get it. So it's going to be 50/50. And he said to me, it'll fail 50/50, it'll fail. So I said, well, let's see.
Sam: And was that a threat?
Lord Browne: I took it as a statement of opinion. And so we proceeded. And then I think he found it very convenient.
Sam: Did you see him as a reliable partner?
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Lord Browne: Yes. Putin in his first phase was cleaning things up. Actually, you know, he really was. There was no application of the rule of law. And he kept saying, I remember when he came to the UK in late ’99 and he said, I'm going to clean this up. We now have the rule of law. We're going to have contracts. We're going to have, you know, people do things in the right way. And everybody said, that's really good. You know, he was a hero. And, this is following on Yeltsin, who was, you know, trying to figure out some form of democracy but was in a bit of chaos. So Putin was regarded as reliable and there were checks and balances. I mean, we didn't write a blank check contract. We wrote a contract that was tested outside Russia that had lots and lots of things which protected the interests of both parties against each other. And so we proceeded and there were certainly, you know, lots of bumps in the relationship.
I went to see Putin probably four times a year. You know, he would have an agenda with him about how things were going. He would ask questions. I'd have the same agenda every time, because I do believe that consistency of when you come when your business is important, because if you're consistent, the government at least is biased to be consistent towards you. Not necessarily, but at least they're biased that way. So I got to know him quite well. I mean, in some ways. But I stopped seeing him in 2007 when I left BP.
Sam: I'm quite interested in oil companies generally, whether it's become easier or more difficult to do business in today's world given geopolitical shifts. But also there's the pressure to help accelerate and lead the climate transition.
Lord Browne: So I think that it's probably both easier and more difficult. The first thing to note is when I was doing business in all these countries, it was almost a de novo start. The moment you step foot into a country. So in some ways, you know what you've got to do. The expectations are high about national interest, about returns, about windfall profits. You know, no one else should do windfall profits, mostly nowadays. And environmental standards, a lot of things are covered already. And so that says, well, we are where we are, you know, and that's a good thing because you never want to try and do a deal which is so past in your favor that when people get up to speed on the deal, they realise that it's so bad they're going to take it away.
Sam: It triggers buyer's remorse.
Lord Browne: It does, you know. So you've got to be balanced and treat everyone fairly and equally. So that's, I think, a change. I think the level of influence of host countries has reduced significantly. That may not be the case if you're from the United States, or China. But it is now more difficult to believe that your country has the clout to change things. So people are more skeptical about that than they used to be. And that's part of the fact that the relationships are all up for grabs now.
Sam: The relationships are up for grabs. Up for grabs, indeed. But I'm also interested in China, which doesn't always come up in the discussion around energy. But they are a major player in the energy world, especially because of how they've dominated the renewable market, whether it's solar, wind, electric vehicles, batteries, you name it. And how is China's increasing contention with the West affecting the businesses of energy companies and the periphery countries that also have an interest in the energy market?
Lord Browne: Well, underlying all the work going on on renewables, of course, is the basic energy business. BP was the biggest foreign investor in China for quite a long time in refining and the importation of liquefied natural gas. And China is a very big energy player. It's just that it doesn't have a lot of energy of a liquid form. It's still developing a lot of coal fired power stations. It's the one thing they can rely upon. If someone cuts the chain of. Gas imports, for example. So all of that is still happening and that changes the way that China has relationships with gas producers.
In addition, it has single handedly reduced the cost of solar power by producing very large amounts of cells. And it still does and it will still be producing those for the world in various parts. Equally, a lot of nations are now saying, it's’ time for us to start building solar panel manufacturing, which they will do.
Sam: Which they do, because I've been wondering whether there is a future for renewable energy that doesn't involve China's active participation, especially in the context of the US-China relations?
Lord Browne: It entirely depends where you stand, you know, because the US is not the only place that has solar panels. Europe and the whole of the global South, for example, could do with a large amount of renewable energy. Much of the equipment will doubtless come from China, whatever Europe and the US does, but there will be more diversification. There's no doubt again, it'll be diversification because security comes from diversified supplies and that is what will drive it. The key limiting factor in all this will be how much people are prepared to pay because it will be more expensive when you start up things elsewhere and can you get the supply chain sorted so you can get the right critical minerals in order to make all these things?
So batteries, for example, which China is the world leader in, you know, they will be made elsewhere. No one will rely on the West. And this will require real changes in the supply chain.
Sam: And what you said is who is going to solve this and is this something that needs to be dealt with at a national level, regional level or global level? Because whenever you begin to look at the transition to net zero, one of the big questions is where is the leadership? This is hugely complex. It's changing the industry, it's changing the way we live. Is the market somehow going to drive this or what level is the leadership going to come from?
Lord Browne: So it will probably be national policies that will determine the drive and therefore the leadership will have to be nation by nation. There will be some interaction, but actually in the end, there's going to be no central giant brain that sorts this up for the world, nor will there be some world government that does it. Unfortunately, it doesn't work. Or fortunately, I'd say it doesn't work. So it will be national. And that's the advantage of the Paris COP in that it at least gave people a sense that there are delegated targets, nation by nation. Now, there are plenty of problems with that. The targets weren't well defined, monitored and yes the people's choice.
It’s the choice of what the long term vs short term choice is and how wise that choice is. You know that varies according to nation. And indeed. Some nations have no choice. So the $100 billion which was promised to the Global South every year wasn't delivered. That must be delivered. And there are plenty of ways to do that that I hope will be looked at.
Sam: I'm pleased you've mentioned the $100 billion that was promised to countries in the Global South, because implicit in everything we've been discussing is the need for an industrial revolution. And that's going to require trillions of dollars of investment for very capital intensive industries. Carbon capture and storage, hydrogen, all of these industries require billions of investment. Government balance sheets are stretched. I don't think taxpayers are really in the mood to pay higher taxes to fund the climate transition. So where is the money going to come from? How do we unlock the capital that is needed for the much needed investment?
Lord Browne: So we obviously need a lot more capital. And I think that capital has to come out believing, as I do, that investment in these industries and in the infrastructure related to it is actually a source of growth. This is not a zero sum game. Obviously, that's replete with political viewpoints and dogma. But I think every demonstration shows that when you start investing in increasing the efficiency and effectiveness, which is what this does for a nation, it will improve productivity, it will generate wealth. And therefore, I think this is done both with a public and private source of money. So public private partnerships are essential. There is money to unlock for this, provided that people believe the public policy that taxes and regulations are consistent and in favor of producing a sensible rate of return - and I mean sensible rather than windfall.
Sam: And we've seen that with wind energy offshore and onshore.
Lord Browne: We've seen it. Yes, we have. But it has to again, be a systems approach, if you will. Speaking as an engineer, I say it's a systems approach. You know, you have to have all the regulations and taxes all aligned. So it's all very well giving people money for offshore wind or subsidy. But if they can't connect it to the grid… So lots of things need to go in the right direction.
Sam: And can you say that the Inflation Reduction Act in the US is a template for other countries. It’s obviously a huge size, it wouldn't be that for every country.
Lord Browne: It is. I mean, obviously some of that still has to be appropriated properly and laid on the ground. It takes time to put this amount of money to work. I mean, the Department of Energy alone in the United States is accountable for some $880 billion of government funding, which goes hand in hand with private funding. And it would take a little time to get that going. But it's going at a fast speed. So that's good. It's a combination of getting the jobs in the right places, which is about growth in industry, getting industry developed in a way which is green, getting energy transition conducted in a way which is green. So all these things are sort of aligned in the different forms of legislation that have been passed at the federal government level.
Sam: And, you know, as a sort of former politician myself, I look at that and think, that's great, I agree with you. It's the sort of template that would work. But you can see the US too. You could see the EU, you could see China doing it. But then I wonder what does it mean for smaller countries? Where if you can't respond in terms of the same degree of subsidy, but at the same time, if you don't respond, you risk losing in the new industries of the future.
Lord Browne: I think you’ve got to focus. And of course, when you boil down the Inflation Reduction Act, it is a piece of industrial policy and therefore industrial strategy. It's not picking winners. It's picking big sectors that need the public purse to really motor forward. And that is something that is sort of a new thought, if you will, but it's not the same as it used to be in the sixties and seventies, feather bedding failing industries because you believe that's part of industrial strategy. This has nothing to do with that. This is a more sensible approach of making sure there's enough competition within the sector in order to get the right answer, but supporting the sector. And that's important.
Sam: Practically speaking therefore, where are we in this transition? Is 2030 doable? Is it 2050?
Lord Browne: There is no doubt we are behind. We're not investing enough money. We may not be able to invest enough money. But I believe that people are now trying to do that and to do it on an equitable basis. I hope that at COP 28 we will solve or at least start solving some of the problems of investment in the Global South. And 100 billion is only the start, in my view.
I think the emerging economies really need a lot of help. It's what we do in 2030 that matters because it's all about the cumulative banking of greenhouse gasses in the atmosphere. So 2030 is an important date. 2035 is an important date. Every date is important. The more we're behind, the more unlikely it is that we will achieve net zero by around 2050.
Sam: You mentioned COP 28. Is there any intervention that you personally would be making for this COP? Given how high the stakes are and the complexity of meeting the challenges?
Lord Browne: Up until today, I would have said I will keep that to myself. But I noticed that I've been COP 28 on Twitter or X I should say - that Mr. Carney and I were talking about climate finance, and I think that there should be a big breakthrough for incorporating it, and I'm committed to helping in any way I can. I think that's a very important thing. How do you get finance into the right places at the right risk level? And there are lots of ways of doing that.
Secondly, there has to be something to do with accelerating decarbonisation, both from the oil and gas industry, but from industry generally, and that includes methane capture. There should be no reason why we put any methane from any industrial activity into the atmosphere. So I think those are two very important things. And the third important thing is to put some rigor and real confidence into the carbon markets. And by that I mean the offset of carbon pricing.
So, if I could write this in a way which would be what I really want, I would love to see carbon pricing everywhere. Do I think politically that can be done? Probably not, because America doesn't like it very much. But there are other ways of doing it. But in the end, you know, the world has to pay - and that's about pricing carbon.
Sam: And I mean, you touched on money. Much of the discussion I hear from investors, given my involvement in venture capital, for example, is that there is a lot of money going into climate, but not enough coming out. Apart from, you know, people mention Tesla as the poster child of a climate driven company that is worth billions on the stock market today. You have been Chair of a private equity fund investing in renewables. You are now Chair of Beyond Net Zero. And for the benefit of our listeners, you’re doing that with General Atlantic, a long standing venture capital firm with a long track record of success, of investing in and backing new ideas. Can you tell me why you've chosen to embark on this phase?
Lord Browne: I set up with a friend of mine, we’re two co-founders. We set up a Beyond Net Zero, which was to be a growth equity climate only fund. So we have to invest in companies with a minority interest where we influence companies in the growth stage that can reduce greenhouse gas emissions in line, at least with science based targets. So we've invested in practical outcomes. We can invest in companies that do actually make money and do actually increase in value. There are plenty around you have to find them, have to work with CEOs, all of whom like to do this, work with CEOs, give them the means to grow. And the name of the game is to grow because then they have an impact in the future. So there is definitely money that can come out the energy business.
The payback time for most of this stuff is longer than people think it is, you know. So in private equity of a five year investing horizon, you will get some realisations in the first five years, but they will come out in the second five years.
Sam: So these are long term investments that require a very different time horizon in terms of investment and return?
Lord Browne: Yes, it is. It therefore requires a reasonably high IRR rate of return in order to encourage people to invest. But again, that is possible.
Sam: Do the leaders that you've talked to really think that integrating climate change into their business plans? Is it something they really believe and want to do?
Lord Browne: I think if you look at business leaders, they're all over the place. Some really want to do it. Others do it because they are fellow travelers. They come along with other people and some people say a lot and do nothing.
On balance, I’d say businesses understand that business is a long term activity and they understand this is important for the long term. And they also understand that while their customers or clients won't pay a big premium, sometimes a whimper at all, they are very concerned to do business with people who are doing something about the future. You know, whether we can find a green premium for big things like steel or cement and things like this, that remains to be seen. But there are plenty of people who are prepared to go forward on this basis.
I note that, for example, even in green steel, because it represents a smaller input into finished goods, people are prepared to pay a premium for green steel and use it because it hardly impacts the overall cost of the finished product - a car for example. So I think that there are movements in all these areas. My concern is not that there are movements. My greater concern is that they are not fast enough.
Sam: And judging by the wildfires and floods this year, I mean, we've already transitioned arguably into a climate impacted world. And the net zero transition is going to involve huge trade offs in the developed world, in the developed developing world by 2050. And when I reflect on this, I begin to wonder how much of it is down to business and investment? How much of it is down to government policy, but also how much of it is carbon abstinence? And the reason why I think about this is this is a multi-decade transition. And to curry public support with you for that period of time, if it's based mainly on carbon abstinence, it's going to be hugely challenging. So how do you think about all these factors and how we weigh policy, investment in innovation, changes of behavior that we expect from citizens and consumers?
Lord Browne: Well, you know, I think, first of all, Government can't sit to one side and say they will do nothing because they have to set the policy framework and then get out of the way.
Policy framework is very important. It is the thing that will drive everything. Business will deliver. They're the delivery vehicle, not governments. Businesses are the delivery vehicle. And consumers will, I think, respond both to availability of goods, so cleaner goods and also regulation. I mean, I know that using carbon is not the same as a smoking addiction, but it's remarkable what's happened to behavior change by making it more and more difficult for people to smoke and more and more expensive to make people smoke.
Carbon is also a health hazard, of course, you know, as is diesel, clearly a health hazard. So I think there are legitimate ways of changing behavior, if you bear that in mind. It's not just the environment, it's the local health and the fact that it would be good and essential to avoid floods, wildfires and extra force hurricanes because the oceans are warmer and there are plenty of ways of getting there.
I'm very confident that solutions are possible and can be delivered. They need to be delivered commercially and they're not already commercially. Government has to help make that possible.
Sam: Thank you, Lord Brown, for your time.
Lord Browne: Thank you.
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Managing Director, Head of Business Development and Client Engagement at Manchester Capital Management; Former Managing Director at Goldman Sachs and JPMorgan
8moCongrats on the success of your podcast and newsletter Sam Gyimah. What a terrific idea.