Energy Sector Raises Shareholder Returns At The Expense Of Green Investment

Energy companies have sufficient capital to help advance the energy transition, but firms have increased returns to shareholders in recent years instead of reinvesting capital in low-carbon growth areas, global consultancy Bain & Company said on Thursday.   

Capital itself is not necessarily the constraining factor in the transition to greener energy solutions, according to Bain & Company’s research.

For instance, oil and gas companies reinvested 43% of capital for growth last year, down from 58% in 2018. In the mining sector, firms reinvested 44% in 2022, compared to a 56% share of reinvestments five years ago, the analysis showed.  

In the utilities sector, the share of reinvestment for growth has remained steady and capex has been rising. However, the levels of investment are not enough to fully modernize and expand the grid for the target levels of renewable energy and electrification, Bain & Company said.

According to executives surveyed by Bain, a lack of capital is not the primary concern about investment in low-carbon energy areas. Only 19% of energy and natural resource executives see capital scarcity as a barrier. The primary concerns among most executives, 78% of them to be exact, are return on investment and customer willingness to pay.

Per Bain’s analysis, assuming a 10% average cost of capital, every $1 billion in capital deployed requires about $160 million in revenue from customers each year.

“The trouble is that although consumers are concerned about climate change, they may not be willing to pay higher bills to help combat it,” the consultancy said on Thursday.

Recent surveys by Bain have shown that less than half of U.S. and EU consumers are willing to pay for even a small rise in their residential electric bill or fuel price to help reduce emissions.