Recap of Class 6 (Exxon and Future of Fossil Fuels) and Class 7 (EU's Green Dream Denied)

Part of my insider series tracking the conversations in my MBA course "Climate, Sustainability, and Corporate Governance"

Two more fascinating conversations this week! The throughline for these conversations was how tightly bound sustainability strategy is with geopolitics. In class 6, we explored the dynamics of Exxon’s Guyana investments, and had a conversation with former Ambassador to Venezuela Patrick Duddy. In class 7, we welcomed Patrick Moloney, a Copenhagen-based consultant to share the latest news on the EU’s regulatory mandates for sustainability disclosure, and high-stakes conflict with national security and competitiveness goals.

Class 6: Understanding energy transition – and the future of fossil fuels

We started today’s class by exploring what the concept of Energy Transition means, and whether we have actually ever experienced it. Initially, students defined it as moving from fossil fuels to renewables. Today’s discussion pushed us to think more deeply about the dynamics of a changing energy system, and how this relates to climate, development, and geopolitics.

Signals of energy transition: We began by asking a simple question: how could we tell if an energy transition is happening? According to students, signals could include observing the behavior of big emitters, tracking global carbon emissions (PPM in the atmosphere), and monitoring demand shifts. Other signals are financial pledges, visible changes on the landscape (like new wind turbines), customer choices, the level of debate and contestation around the shift, and government incentives (like the IRA).

The Climate Story Premises: Energy transition has many causes and consequences, but climate change sits in the middle of this orbit. Before getting in to the details of energy systems, we laid out the foundational premises of the climate story:

1. Massive Energy Growth: Global energy use has skyrocketed in the last century, shifting from traditional biomass to coal, oil, gas, and nuclear.

2. Energy-GDP Link: Historically, energy use and GDP (a proxy for prosperity/well-being) are fundamentally linked. Satellite images dramatically illustrate this connection, showing vast differences in light density and GDP between countries like North and South Korea.

3. Atmospheric Chemistry Change: Emissions, primarily from fossil fuel combustion, are changing the atmosphere’s chemistry. Carbon concentration has risen from about 300 parts per million (PPM) in 1911 to over 420 PPM today. Notably, 40% of all human emissions have been emitted since 2000.

4. Temperature Rise: Global temperatures are increasing, now approaching the 1.5°C threshold above pre-industrial times (1850s). Scientific consensus is that 2°C is too risky, making 1.5°C the critical point for losing control due to uncontrolled positive feedback loops. Ocean temperatures have spiked recently, absorbing immense excess energy (equivalent to “about five nuclear bombs per second”).

5. Leaving the Goldilocks Zone: The last 12,000 years saw enormous temperature stability (”Goldilocks zone”), allowing civilization to flourish. All of our infrastructure, cities, food systems, and ways of life are premised on climate conditions (temperature, seasons, weather volatility) that have been in place during this period. In the last several decades, we have departed this zone and are headed toward planetary conditions that are increasingly incompatible with those systems.

Addressing Emissions: The steep incline in emissions since 2000 is driven by a multiplier effect of population growth, economic growth, and increased per capita emissions. The greatest impact on emissions reduction would come from addressing the carbon intensity of the lifestyles of the wealthiest. Since affecting population or limiting energy use is undesirable, the focus of change must be on changing technology, developing energy sources that support economic growth without the same emissions cost.

Historically, fossil fuels were the cheapest form of energy, but renewables are arguably at cost parity today. In the U.S., the biggest factor in the reduction of per capita carbon emissions over the last 15 years was the shift from coal to natural gas.

The Stabilization Goal: To stabilize the climate and sustain human prosperity, the energy system must be rapidly transformed. Getting to 1.5°C requires a steep trajectory of emissions reductions starting now. Crucially, to meet this target, the line drops below zero net emissions, meaning carbon removal (negative emissions) - machines that suck carbon out of the atmosphere - is required alongside mitigation.

Definition and Reality Check: Energy transition is defined as a long-term structural change in energy systems, such as a 10% drop in market share for an energy source. However, the data shows that global energy use is characterized by “energy addition”, not transition“, where new sources (like renewables) are added on top of existing fossil fuels, which are still growing. Transitions take a long time due to the massive scale of the system; for example, it took 75 years for natural gas to reach a 10% market share.

Energy transition is not driven only by a concern for climate change; in addition to reducing emissions, energy security, and improved national competitiveness are becoming the primary motive for change. It is also critical to understand that energy is a system, and the inter-connections between parts of the system are complex. For example, growing the sharing of EVs does not necessarily reduce emissions unless the electricity generation mix is also decarbonized. We also discussed the concept of rejected energy (waste lost during conversion), which highlights system inefficiencies.

Geopolitical and Energy Discussion with Patrick Duddy

After a short break, the class welcomed Patrick Duddy, former U.S. Ambassador to Venezuela and a Duke faculty member. Duddy shared his background, including his tenure as Deputy Assistant Secretary of State responsible for hemispheric energy issues, and the unique experience of being formally declared persona non grata and expelled from Venezuela, only to return later for a second term.

Guyana Oil Boom and Geopolitical Shift: Duddy reported that nearly everyone in the Latin American energy world is “blown away” by the oil discoveries in Guyana. Guyana’s production is approaching 900,000 barrels a day, potentially catching or exceeding Venezuela’s production, and Suriname is also expected to join the party. This boom has displaced former major players like Colombia, which has seen declining supply.

Countries like Mexico and Venezuela are seeing production declines due to factors like depleting traditional fields, a lack of capital investment, and the diversion of oil income to social programs.

Guyana’s Strategy and Risk: Guyana, historically desperately poor and losing population, has seen oil revenues transform its economy, with a 40% GDP growth rate last year. Its strategy to “pump fast, decarbonize fast” is viewed by Duddy as “mostly a slogan,” as their immediate interest in energy transition is not urgent.

Guyana chose to partner with International Oil Companies (IOCs) like ExxonMobil and Chevron/Hess because it lacked the money, expertise, and infrastructure to develop the sector itself. Exxon has invested approximately $40 billion in Guyana so far, and has earned back around $38 billion. Long-term, this investment will be very profitable for Exxon, though a major risk facing Guyana is resource nationalism, which could surge if the windfall profits are not adequately shared with the public.

Geopolitical Protection and Venezuela: The presence of ExxonMobil and Chevron is a key part of Guyana’s national security strategy. Venezuela has openly coveted Guyana’s oil, holding a 2023 referendum on annexing more than half of Guyana’s territory. Having American majors there gives the U.S. a “big stake” in Guyana’s sovereignty, providing a geopolitical buffer against Venezuelan aggression, evidenced by the presence of British and U.S. ships and modest military exercises after Venezuelan threats.

The shift in oil supply from Venezuela to trusted partner Guyana, a member of Caricom (Caribbean Community), is highly significant for the entire Caribbean region, especially those dependent on oil for electrification and fuel.

U.S. Administration’s Stance: Duddy noted that the current U.S. administration favors the US and its closest allies producing more fossil fuels. There is skepticism within the administration about inhibiting the development of the fossil fuel industry.

Comparison to the British East India Company (B.E.I.C.): The case prompted discussion about whether Exxon’s involvement is a modern form of colonialism. Similarities noted included the involvement of a foreign entity in building infrastructure and maintaining influence. Differences included that India started rich, while Guyana started desperately poor. Exxon relies on a business partnership (and U.S. protection), unlike the B.E.I.C., which had its own mercenary force. While the B.E.I.C. destabilized India, resulting in partition, the outcome of Exxon’s long-term presence is still unknown.

Ultimately, the lessons from Strategy 627 reveal that geopolitical interests shape every major energy choice. Whether a country chooses supply-side dominance (as favored by some U.S. strategic thinkers skeptical of inhibiting the fossil fuel industry) or embraces transition depends heavily on its internal political ideology and external security threats. Success in navigating the sustainability mandate requires integrating climate action directly into national security, economic competitiveness, and corporate capital planning.

Class 7: EU’s Green Dream Denied: Why Geopolitics Just Rewrote Corporate Sustainability Strategy

Today’s class discussion was anchored by Patrick Moloney, a Copenhagen-based sustainability expert with Ramboll Consulting (joining virtually). Patrick has become a valuable partner for Duke, speaking with several groups of students in Durham and in Europe over the last couple years. His insights are shaped by constant contact with people close to the EU policy conversation, and the companies that are coping with the ever-evolving requirements.

For years, the European Union (EU) stood as the center of the universe when it comes to sustainability standards and regulations, relentlessly driving the state of the art globally. This dominance meant that any global company—whether Asian, American, or purely European—had to abide by the EU’s rulebook if they wished to operate in this critical market.

The result was a massive, accelerated regulatory push defined by immense compliance burdens. Suddenly, approximately 50,000 European companies were brought into scope, facing requirements like the Corporate Sustainability Reporting Directive (CSRD), which demands up to 1,100 data points. The sheer complexity and resulting costs created a bizarre paradox: sustainability budgets were allocated not to action, but to “feeding this beast” - hiring consultants and paying auditors to ensure compliance.

This energetic regulatory ambition, however, has collided violently with geopolitical and economic reality, resulting in a systemic pushback. The EU’s ambitious green policies, once considered unassailable, are now giving way to a new priority: economic security, resilience, and strategic autonomy.

The consequence for global business leaders is “policy whiplash”. Companies that were ambitious and “over prepared” are now being forced to decelerate their spending, sparking frustration among boards for what is perceived as wasted capital. Sustainability is not dead, but its focus has been profoundly redefined, becoming intensely selective and prioritized.

The Geopolitical Engine: Six Spinning Washing Machines

The pivot away from pure regulatory ambition is driven by external volatility. Issues once viewed as abstract, distant “macro” concerns are now immediate, very local corporate problems. This environment of uncertainty has been likened to being surrounded by “six washing machines” all spinning simultaneously, with no clear end date:

1. Shifting Dynamics of European Politics European politics are in a volatile state due to the rise of right-leaning parties, which can quickly shift the composition and focus of the EU Parliament. Politicians operate on four-year electoral cycles, leading to populist moves and providing political cover to avoid tough sustainability decisions that conflict with economic interests. While political sentiment swings, core climate ambition and human rights elements remain legally embedded within EU law, ensuring they will win out over time, though subject to current political dynamics.

2. Economic Performance and Industrial Health The EU is now filtering sustainability through a “competitiveness filter”, driven by the need to re-industrialize and achieve strategic autonomy, as articulated in the Draghi Report. This shift mandates focus on the Clean Industrial Deal, prioritizing support for heavy-emitting industries (like steel and cement) to decarbonize, reducing reliance on non-EU countries. Circularity is being relabeled as “Resource Autonomy,” becoming a high priority because the EU must retain critical minerals (like copper, lithium, and cobalt) in the loop to support electrification and energy security due to scarce natural resources.

3. Geopolitical Shocks and Supply Chain Realignments Geopolitical shocks are making previously abstract issues intensely “very local” for companies, requiring them to incorporate threats like US tariffs, Russian aggression, and supply chain volatility into immediate planning. The energy system is defining a new global order, potentially aligning certain major powers around “fossil centricity” versus a decarbonization platform. Supply chain issues regarding critical resources, alongside increased security risks from potential sabotage (cyber and physical) to critical infrastructure like pipelines and energy grids, are now forcing a fundamental focus on corporate resilience.

4. Finance and Capital Market Regulation Shifts The scale of the European Green Deal required the Sustainable Finance Action Plan to channel private funds (estimated at over €1 trillion) into the transition, leading to regulations like the CSRD and the EU Taxonomy. CSRD notably enforces transparency by requiring companies to disclose the annual financial allocation of resources toward achieving their sustainability goals, serving as a check against “tokenism”. Capital markets are inherently risk-averse, meaning high volatility in areas like climate and supply chains deters investment, reinforcing the necessity for companies to mitigate risks to attract capital.

5. Public Sentiment and Social License A paradoxical situation exists where public sentiment regarding sustainability is declining, evidenced by recent reports, while the demand for maintaining a strong social license to operate is simultaneously increasing. Regulations like the CSRD enforce a high social realm that mandates companies disclose issues such as the gender pay gap and address their impacts on affected communities and consumers, going well beyond internal workforce concerns. This focus was triggered, in part, by the Taxonomy revealing that few companies had adequate standards regarding human rights and responsible business conduct in their value chains.

6. Climate and Environmental Events Climate change is not receding as a priority because physical risk (such as extreme heat, forest fires, and flooding) is now undeniably real and constitutes a “no brainer” for financial investors. These events trigger “reactive politics” and urgent adaptation measures, exemplified by Spain passing new resilience laws after severe environmental disasters. For critical entities like energy utilities, strategy must now focus heavily on resilience—the ability to maintain continuous service under stress from climate hazards—because climate laws and decarbonization targets remain embedded in European legislation.

The Competitiveness Filter: The Rise of the Clean Industrial Deal

A recent shift in ideology in Europe was formalized in the Draghi Report, which identified regulation as a “hindrance” to the EU’s ability to re-industrialize and achieve strategic autonomy. This mandated that sustainability must now be filtered through a competitiveness filter.

The new regulatory focus is the Clean Industrial Deal, which is highly selective and aggressive only in priority areas. Investment now flows almost exclusively toward three strategic imperatives, creating a “Fast Lane”:

1. Resilience: The New Black

For critical entities (such as utilities and energy grids), “resilience is the new black”. The focus is on ensuring the ability to “continue service under duress”—be it from climate-related hazards, sabotage, or supply chain disruptions (like copper supply for grids).

This imperative is driven by new legal mandates like the Critical Entities Resilience Directive (CER), forcing organizations to look at their societal obligation. Strategy for these firms must center entirely on preventing disruption.

2. Resource Autonomy (The Relabeled Circularity)

The circular economy, once an environmental concern, is now being aggressively relabeled as “Resource Autonomy”. Since the EU lacks essential natural resources (such as oil reserves and critical minerals), the green transition—electrification, building more batteries, turbines, and PV—is the “only solution” to energy security.

This requires companies to focus aggressively on retaining critical materials (lithium, cobalt, copper) “in the loop” to reduce reliance on geopolitically unstable markets.

3. Monetization (Decarbonizing Heavy Emitters)

Investment is prioritized for energy-intensive sectors (like steel, cement, built environment) that are critical to the EU’s ability to re-industrialize and achieve competitiveness. These sectors are the “problem makers” and must be targeted for decarbonization, while “problem solvers” (like green energy providers) are promoted.

The Slow Lane and Fragmentation

Issues that do not directly contribute to EU competitiveness—such as textiles (fast fashion), packaging, and electronics—are pushed into a “slow lane”. Legislation concerning these sectors is delayed or deprioritized.

This creates fragmentation: while progressive member states (like Sweden and Finland) “plow ahead,” others (like Hungary and Poland) will likely fall behind. Multinational companies that once relied on EU law as their guiding star are now forced to revert to navigating 27 different individual laws, creating a significant management headache.

What Leaders Must Do Now: Strategic Principles for Uncertainty

In this environment, sustainability professionals are experiencing a “period of grief” and boards can no longer operate on linear projections. Strategy must be anchored by principles designed to guide through extreme uncertainty:

1. Scenario Planning and Stress Testing: Instead of simply projecting forward from the present, companies must draw different versions of a volatile future (e.g., a 2035 scenario where the EU has “no access to lithium”) and “work backwards” to determine necessary actions.

2. Align Commitments with the Business Model: Any commitment must align with the core business model to be viable during uncertainty. As one student noted, in times of uncertainty, companies “don’t [need to] be relying on the government or anyone else”.

3. Financial Transparency as a Check: CSRD, even diluted, forces companies to be transparent about their annual financial allocation of resources toward sustainability goals. This mechanism serves as a check against tokenism, ensuring that targets aren’t just set, but genuinely funded.

4. Focus on External Risks and Opportunities: Boards must look beyond internal operations and focus on customers (downstream opportunities) and upstream suppliers (risk mitigation).

The climate fight is not ending, but its purpose has been merged with a more fundamental goal: economic survival. The pushback is real, but the legal reality - that climate ambition and human rights are embedded in EU law - will win out, albeit on a new, highly competitive, and pragmatic timeframe.