Opinion

Greenwashing BP and Shell are showing their true colours: profit, shareholders, and more profit

A year on from the windfall tax, oil companies are pouring the cash they've made into the pockets of shareholders, writes Pranesh Narayanan from IPPR

BP is funnelling extra cash from the cost of living crisis back to shareholders with billions in share buybacks. Image: Photoedit/Alamy

Last year, 31 companies signed a letter written by the oil and gas industry representative Offshore Energies UK. This letter warned the prime minister that a windfall tax could “jeopardise” investment, jobs and net zero targets. The windfall tax was introduced, but with loopholes that would reward these companies for doing what they had always planned to do – drilling for ever-more fossil fuels.

More than a year on, the likes of BP and Shell have pumped more oil out of the ground and more money to shareholders. This doesn’t mean pension funds, who only own around 0.2% of BP and Shell shares. This means wealthy overseas investors and private equity firms who dominate ownership of UK shares.

This money has come from every household across the UK who has faced a once in a generation cost-of-living crisis. The government was able to shield consumers to a certain extent, through cost of living payments and the Energy Price Guarantee. But industry lobbying was enough to put the government off from making the energy companies pay their fair share, instead, absorbing the losses through borrowing.  

In 2022, shareholders received around £30bn from BP and Shell alone and the latest set of quarterly results announced over the past week show no signs of this party ending. Together, the companies announced share buybacks worth £4.5bn over the next quarter. This is where a company buys back its own shares from shareholders on the open market and adds an extra payment on top of more traditional dividends (which have also gone up).

There are two reasons for doing this. Firstly, it allows the company to reduce the number of shares in circulation, boosting the price of shares that are left. Secondly, this incurs lower taxes for investors – dividends are taxed as income whilst buybacks are not.  

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At the same time, BP and Shell have been rowing back on climate commitments and doubling down on fossil fuels. Shell recently scrapped their commitment to reduce oil production over the next few years. BP has also scaled back its ambitions, reducing its emissions reductions target. In total, Shell spent five times as much on share buyback schemes last year as renewable energy investments. BP spent 10 times as much.  

Big oil companies successfully lobbied the government to cut their taxes by claiming that they will put the net zero transition at risk. A year on, they’ve transferred vast amounts of wealth from ordinary households to the most well-off and put the net zero transition at risk. The government should respond by introducing a tax on share buybacks. Even a modest rate of 4 per cent could raise almost £2bn a year.  

They should also be wary of oil and gas companies’ claims that they are vital to the clean energy transition – BP has stated in no uncertain terms that “a resilient dividend” is its “first priority”. Oil and gas companies have shown their true colours over recent months, putting shareholder interests above the planet.

Do you have a story to tell or opinions to share about this? We want to hear from you. Get in touch and tell us more.

Pranesh Narayanan is a research fellow at IPPR.

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