Behind Oil Giants Retreat From Renewables And What Could Force A Reversal

Large, private fossil fuel firms that once rode the renewable wave to diversify into the ‘future renewable energy’, with promised investments of dollars, are now rolling back their green pursuits. The pace of exit of these firms is seemingly faster than the sector’s adoption in the past, owing to several factors – from uncertain policies to low profitability.

BP’s Retreat: An Alarm

Until a few years ago, oil and gas companies had been announcing large-scale capital-intensive flagship projects in the renewable and clean energy sectors. BP, the firm that announced even a logo change with much fanfare a few years ago when it read the writing on the wall and pledged to go greener, has been one of the most remarkable pullback stories. For example, in 2022, BP took a 40 percent stake in the hydrogen-focused Western Green Energy Hub in Australia, set to be one of the largest renewable projects in the world. This was followed by BP’s USD 2 billion commitment to develop hydrogen, biofuels, and renewable energy around its refining operations in Valencia, Spain. 

However, the firm's pullback assumed a faster pace when it sold its onshore wind power business in the United States a few days ago.

Focus Back on Core

BP’s sale of its US onshore wind assets to LS Power sent a clear signal: it is moving away from large-scale renewables. These assets, once part of BP’s push to rebrand itself as a clean energy leader, covered 10 wind projects across seven states and produced 1.3 GW of capacity. The divestment is part of a broader strategy under CEO Murray Auchincloss to generate up to USD 3-4 billion from asset sales this year, and a total of USD 20 billion by 2027.

BP Boss Auchincloss has been blunt in his messaging: BP had "gone too far, too fast" in its green energy expansion, and it is now undergoing a reset to focus on profitability and shareholder returns. The company plans to scale back its 2030 emissions targets and ramp up oil and gas production, clearly a reversal from its earlier ambition to cut fossil fuel output by 40 percent this decade.

The reorientation is also reflected in its internal structure. In a significant move, BP eliminated the executive-level role responsible for “regions, corporates and solutions” – a key post that once coordinated net zero efforts. The entire low-carbon narrative now seems to be more selective and pragmatic, targeting only ventures that align closely with its core operations.

The Exit from Net-Zero Frameworks: Not Just BP

It’s not just BP. Other fossil fuel giants, including Shell and Equinor, have also walked away from high-profile climate groups. The most notable example is their exit from the Science Based Targets initiative (SBTi) – a globally recognised standard-setter for corporate net-zero targets.

The SBTi had floated a draft proposal requiring oil and gas companies to halt new exploration and production to maintain credibility in their net-zero pledges. Unsurprisingly, this triggered backlash from industry leaders who argued the approach was disconnected from energy realities and could threaten global energy security. Shell formally withdrew from the SBTi's advisory group, while BP and Equinor also stepped back from the initiative.

Shell’s internal communications later described the draft guidance as "unworkable," underlining how far apart the oil industry and climate science bodies now appear to be. Their collective exit has cast doubt on the credibility of the initiative and has raised alarms about how serious the sector is about its net-zero commitments.

Policy, Profitability, and Pressure

At the root of these pullbacks lies a tough economic equation. Renewable projects – especially wind and solar – are capital-intensive, slow to pay off, and increasingly exposed to policy volatility. Or at least that is the narrative these firms would like you to believe.

While early investments were buoyed by generous subsidies and investor goodwill, the recent tightening of fiscal conditions and political shifts have made green energy less attractive, particularly in regions like the US and Europe.

This is evident in the Trump administration in the US, and similar current political climates. Regulatory uncertainty around permitting, tariffs on solar equipment, and the high cost of grid integration have further squeezed margins.

By contrast, thanks to periodic geopolitical flare-ups, fossil fuel investments continue to yield higher and more 'predictable' returns. Rising global demand for oil and gas, especially in the wake of energy security concerns triggered by the Russia-Ukraine conflict, has given oil majors all the more reason to lean into what they know best – oil and gas production.

Shareholder Sentiment Wins

While public and political narratives have focused on decarbonisation, shareholders have remained fixated on bottom-line growth. For investors, the unofficial floor on oil prices of around $65 in recent years has proven that fossil fuels remain deeply profitable, and companies that stick with hydrocarbons are being rewarded handsomely.

For instance, BP’s share price has performed better since it announced plans to increase fossil output and reduce spending on renewables. Similarly, Shell’s leadership has faced pressure from major institutional investors to focus less on long-term net-zero goals and more on improving returns.

Activist investors, once the leading voice pushing oil companies to clean up, are now being outshouted by others demanding higher dividends and more aggressive fossil fuel plays.

Keeping Up The Act: A Shift in Green Strategy

It would be incorrect to assume that these companies are walking away from the energy transition entirely. That would  look too bad for their public image.  Instead, we see a new focus towards lower-risk, 'higher-margin' low-carbon businesses - like carbon capture and storage (CCS), hydrogen, and advanced biofuels. These are areas where oil companies can leverage their existing infrastructure, engineering know-how, and market presence. And of course, commit limited funding as well for now, as CCS remains a strugglig technology with no promise of real results.

For example, Shell is investing in bio-LNG and blue hydrogen projects, while BP is still pursuing its Valencia-based green fuel corridor and select CCS ventures. These projects don’t require the same transformation of their business models as large-scale renewables do and align more closely with existing operations and resources.

This new strategy is more about integration than reinvention, aligning green ambitions with traditional profit centres, rather than replacing them outright.

A Cautionary Note for the Energy Transition

The withdrawal of major oil players from wind and solar may not cripple the renewable sector - after all, dedicated renewable firms like Ørsted, NextEra, and Enel remain active and growing. But the optics matter. 

When energy giants who once promised to lead the transition now appear hesitant or disillusioned, it creates a narrative of doubt that can ripple across financial markets, governments, and civil society. It also takes away a significant chunk of possible capital that could have been deployed in renewables, perhaps as high as $25 billion plus each year. 

This could slow down certain emerging technologies or delay large-scale projects that require blended financing.

Will The Tide Change?

It is clear that little positive change can be expected during the Trump administration, not just for its blind insistence on ignoring climate change impact in the US, but also its influence on many key trading partners, including key oil-producing regions. But even oil markets can only push back against the tide of change for so long. A significant drop in demand from China, the world's leading consumer, that is expected anytime between 2026 and 2030, could be one key driver. Slower than expected growth in India, another key consumer, is another. Finally, even Europe and large parts of Asia could surprise with demand drops if the EV transition moves apace there. Ironically, China, which has championed itself as a leader in the green transition, has been one of the key reasons why the transition has stalled, when it became clear that China has little qualm about using its industry dominance in green sectors to arm twist trade partners. The US, and to an extent India, have clearly decided they would rather suffer higher pollution than bend to Chinese whims and pressure tactics.   

Finally, oil prices could still drop below the critical $60 level if promised OPEC output increases take effect. Those numbers will make even the lumbering bureaucracies in these oil firms consider renewables again. Hopefully, they will be able to execute on costs closer to what renewable specialists manage, one key reason why oil firms have shown consistently poor returns from their renewable forays.