Shell’s Studio X just launched its third cohort of climate startups. But is it a genuine shift towards green energy?
Big Oil has a history of greenwashing its contributions to the climate crisis. In this sense, major companies such as Shell and Chevron, BP and ExxonMobil are very much alike.
Emails and slide decks reveal an intense focus on profits, even as marketing divisions play up these companies’ green energy initiatives: the low-carbon jobs they create, the green and clean futures they envision and the divestments they intend to make. And despite spending millions on low-carbon marketing, industry leaders like Exxon and Chevron plan to spend upwards of 80% of their 2023 budgets on oil and gas.
Indeed, the industry seems to be caught up in a massive game of chess, in which oil companies manoeuvre their pieces to maximise profit.
So when Shell’s Studio X, a climate accelerator designed to “define the next chapter of energy innovation”, recently announced its 2023 cohort of climate startups, it sparked reservations from individuals involved in green energy.
One of these individuals, managing director of Making Energy Greener Rebecca Armstrong, is cautiously optimistic. Making Energy Greener helps install energy-efficient technology in houses around the UK, and though Armstrong supports any measure contributing to a green future, she’s concerned about transparency and creating a just, equitable transition.
Although she’d love for Shell and others like it to be “not just fuel suppliers, but leaders”, Studio X and other oil-backed accelerators make her wonder: “Are we witnessing a genuine shift or a strategic facade?”
“Are we witnessing a genuine shift or a strategic facade?”
According to some, the industry is reaching a tipping point. Regardless of its dubious history, the intentions of the oil industry might finally align with those of clean energy. As former Gulf Oil sales executive Jacqui Smith, who is now an environmental, social and governance (ESG) portfolio manager at Reynders, McVeigh, explained, oil and gas companies now have concrete financial incentives to invest in climate technology.
Between impending regulations in the U.S. and increasingly strict standards in the EU and UK, continuing to funnel a majority of funds into oil wells should look like a risky long-term strategy.
“[Oil and gas companies have] been looking at diverse revenue streams for a while now,” said Smith. Smith’s work, in part, involves helping clients choose successful ESG funds from various alternatives. Over the next 5 to 10 years, “[these companies] know they’re going to have to disclose their Scope 1, 2 and 3 emissions more transparently”.
As a result, oil and gas giants are starting to back climate startups — not always in the divisions of wind and solar, which are a hard sell compared to oil wells, but in a wide range of emerging technologies, from 21st-century manufacturing to efficient energy grid infrastructure, predictive modelling, carbon capture and AI.
After speaking with industry insiders, it turns out that corporations often turn to these accelerators because the more traditional, profit-driven cultures they’re steeped in aren’t necessarily conducive to entrepreneurial success.
Climate technology, after all, is known for being a riskier investment than this year’s hottest software startup. Typically many times more dependent on expensive infrastructure and lengthy research, cleantech takes longer to develop than other startup products, provides a less certain financial return and requires a stronger stomach for the uncertain, unknown and unanticipated.
Even when these oil companies want to develop clean energy technologies, it’s “such a big change”, former Gulf Oil-executive-turned-ESG-investor Smith pointed out. Her former team was lucky. They had forward-looking leadership willing to push new programmes, people with the right energy expertise and concerted buy-in across the company, from sales to legal to tech.
For Shell, that may not always be the case. Following Wael Sawan’s swearing-in as CEO, the energy company announced that in 2024 it intends to cut 15% of its low-carbon division and double down on traditional oil and gas.
In the end, an ingrained aversion to novelty and risk may be the reason why climate founders veer towards venture capital and private investment — and why they often come from outside Big Oil itself. Just ask the University of Houston’s inaugural Energy Fellow, Ed Hirs, a professor of energy economics and a staunch supporter of the carbon tax.
Though Big Oil will fund accelerators, he explained, you’ll still see climate founders angling towards venture capital (VC)— not always because they’re morally conflicted, but because VC funds have the experience needed to launch startups. If you’re seeking an entrepreneurial edge, “you don’t count on an oil company to be your mentor.”
Instead, you head to the coasts of the US or other global tech hubs, seeking out venture capitalists willing to bet on the next Tesla or SpaceX.
In the end, an ingrained aversion to novelty and risk may be the reason why climate founders veer towards venture capital and private accelerators — and why they often come from outside Big Oil itself.
Entrepreneurial aspirations (or lack of them) aside, Big Oil is no monolith.
Even as the industry consolidates — with Chevron and Hess teaming up and Exxon buying Pioneer Natural Resources — oil companies have decidedly distinct reputations. These reputations attract employees and workers who mirror that mindset, steadily exacerbating and exaggerating the original culture.
Thus, success depends on the specific company. “The private equity guys had a rule”, explained Hirs. “You never back any[one] out of Exxon.” But Shell was different. “[I]t’s a more entrepreneurial environment.”
And founders are willing to at least consider their options. Oil companies may have a long way to go before they’re hailed as leaders in clean energy — it’s unlikely they’ll ever completely detach themselves from their past — but many startup CEOs don’t have the luxury of quibbling about funding sources when they’re hell-bent on raising seed capital.
“Entrepreneurs want to go someplace where people are successful at taking these companies public,” said Hirs. If he had an idea that needed to be funded, he’d sign up for Studio X in a second. “You go where the money is. Beggars can’t be choosers”.
In fact, Big Oil-backed climate accelerators may be a useful backdoor way for the industry to diversify, even as some executives demand a greater focus on traditional oil and gas. Like Alphabet’s moonshot factory, X (not to be confused with Elon Musk’s X, formerly Twitter), Shell’s Studio X is decoupled, if only by a few links, from Shell’s mandate to make more money for investors, employees and executives.
Despite Shell’s CEO’s shifting stance on renewables and clean energy, Studio X is still launching cohorts, buffered slightly from executive agendas and the drive for profit.
Its latest cohort is home to an array of emerging technologies in energy storage, hydrogen compression, tiny electronics, predictive modelling and AioT, or the artificial intelligence of things. Among the startups backed are SeisWave, Onvol and Project Geminae.
But for Rebecca Armstrong of Managing Green, Shell’s investments in emerging climate technology don’t completely cancel out its obligations. For oil companies to win her trust, they’ll need to provide a “clear and honest disclosure” of their carbon outputs and champion greater equity. She’s firm on this point. For cleantech investment to be anything more than “a shadow play”, Shell and companies like it must “pivot not just their energy sources but their ethos”.