The international engineering company Wood Group has expanded its oil and gas business and dramatically shrunk its renewables operations after receiving a £430m government-backed “green transition loan”, prompting calls from environmental groups for a review of the process that authorized the loan.
The growth of fossil fuels business of the company, with headquarters in Aberdeen, Scotland, has shown that the government’s “transition export development guarantee” scheme, which guaranteed the loan, facilitates greenwashing and is open to abuse by polluting companies, according to environmental groups.
After receiving the £430m loan, Wood grew its upstream oil and gas business by 17% so that it accounted for more than $3bn (£2.4bn) in revenue in 2022, up from $2.6bn in 2021, according to an analysis of the company’s financial results by the Guardian and the investigative journalism organization Point Source.
Over the same period the company reduced the size of its renewable, hydrogen, and carbon capture business units by 35% so that they only accounted for revenues of $222.8m in 2022, down from $344.6m in 2021.
The five-year loan, which was the first of its kind and was designed to help Wood transition away from fossil fuels, was announced in August 2021 by Liz Truss when she was international trade secretary.
At the time, Truss said the engineering company had “already made great strides in repositioning its business for a low-carbon future”.
After being awarded the loan, Wood announced a string of at least 20 major contract awards for work on oil, gas and petrochemical infrastructure.
These include a multimillion-dollar contract with Saudi Aramco to deliver engineering and project management services for Saudi Arabia’s Safaniyah and Manifa oilfields, which Wood announced on 7 December 2021.
Wood said the two-year contract included the delivery of conceptual studies, engineering work, and project management services for pipelines and infrastructure and would help to “maximize production capacity” of the oilfields.
Less than three months after being awarded the loan, Wood also announced that it had been awarded a new three-year contract by Shell to help extend the production life of oil and gas facilities in the North Sea.
On top of this, it announced significant contracts with the international oil and gas companies Chevron, BP, and Equinor.
Robin Wells, a spokesperson from Fossil Free London, said: “This demonstrates that, in at least one case, the government’s transition export development guarantee scheme has facilitated greenwashing.
“It should not be possible for a company to receive a green transition loan and then double down on the expansion of its fossil fuels business.”
Lucie Pinson, the director of the campaign group Reclaim Finance, said: “It is quite outrageous that the government is financially supporting Wood when the company is making hundreds of millions of dollars from oil deals and, at the same time, we are in the middle of a cost of living crisis where people are struggling to heat their homes.”
Less than a year after receiving the loan, Wood announced the sale of an environmental consulting unit to Canada’s WSP Global for $1.8bn.
According to Wood, the business unit it sold employed 6,000 people and was responsible for “consulting and engineering solutions that address environmental risks, increase climate resilience, help to build more sustainable infrastructure”.
After the sale was completed, the Aberdeen-based company said it intended to focus on a new strategy built around core business units, which included oil and gas.
As part of the strategy, Wood reduced the volume of engineering, procurement, and construction (EPC) work that it took on in the renewable energy sector.
In an investor statement released by the company in late March this year, Wood commented on an increasing share of the company’s “pipeline of opportunities” coming from a small number of sectors, including oil and gas, saying: “The difference mainly relates to the removal of EPC opportunities across renewables, in line with our new risk appetite and strategy.”
Maaike Beenes, a spokesperson for the environmental campaign group BankTrack, said: “The decisions that led up to this loan being issued should be reviewed and UK Export Finance should raise its standards so that this kind of mistake isn’t made again in the future.
“This loan has clearly failed to move Wood in the right direction – and the fact that it was designed so poorly shows a lot of naivety on the part of the government.”
The loan was guaranteed by the government’s credit agency, UK Export Finance (UKEF), which said, in August 2021, that Wood had committed to “increasing its clean growth portfolio and significantly reducing its greenhouse gas emissions over the five-year tenure of the facility”.
According to UKEF, in order to be eligible for a transition export development guarantee, a company must demonstrate that it is “actively transitioning away from fossil fuels” and, if the company does not hit specific environmental targets, it will be required to pay a higher interest rate on the loan.
Crisil, a subsidiary of the US financial information company S&P Global, acted as an independent consultant to assess the credibility of Wood’s clean growth plan and carbon reduction targets.
Wood, Crisil, and UKEF all declined to say what the targets were, how they were measured, or whether Wood was on course to hit them.
In a statement, Wood said it “remains committed to playing a critical role in the energy transition, in the short, medium and long term”.
It added: “A significant part of our role is also supporting our oil and gas and wider industry clients to decarbonize their operations. The KPI measures of the loan center on reducing our own scope one and two emissions and growing our sustainable revenues. We are pleased that we achieved a 65% reduction in our scope one and two emissions.
“Wood’s business was repositioned following the sale of the Built Environment business in 2022 and following this change, we paid down two-thirds of the bank loan value. This change was a contributing factor to the reduction in our sustainable revenues in 2022. However, we have stated that we anticipate significant growth in sustainable revenues from sectors such as hydrogen and carbon capture, utilization and storage through to 2025 and beyond.”
Crisil said it was commissioned to review the feasibility of Wood’s climate transition plan, but was not involved in monitoring how the money was spent or progress on meeting environmental targets. It added: “The review process was conducted in accordance with our bespoke research approach, using publicly available data and management information.”
A UKEF spokesperson said: “We are firmly committed to supporting the UK’s transition towards a low-carbon economy as part of our 2050 net zero target. Our transition export development guarantee requires firms to report progress against a climate transition plan to deliver their commitments.”