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A Shell employee walks past the company’s new Quest Carbon Capture and Storage (CCS) facility in Fort Saskatchewan, Alberta, Canada, October 7, 2021.
Todd Korol | Reuters

As energy sector demand roars back and commodities market pundits talk about the return of $100 oil, there are new factors in the energy sector pushing producers to extract less — from greater fiscal discipline in the U.S. shale after a decade-long bust to ESG pressure and the ways in which energy executives are being paid by shareholders.

In 2018, Royal Dutch Shell became the first oil major to link ESG to executive pay, earmarking 10% of long-term incentive plans (LTIP) to reducing carbon emissions. BP followed suit, using ESG measures in both its annual bonus and its LTIP. While the European majors were first, Chevron and Marathon Oil are among the U.S. -based oil companies that have added greenhouse gas emissions targets to executive compensation plans.

The oil and gas companies are joining dozens of public corporations across all sectors — including Apple, Clorox, PepsiCo and Starbucks — that tie ESG to executive pay. Last week, industrial Caterpillar created the position of chief sustainability & strategy officer last and said it will now tie a portion of executive compensation to ESG.

As of last year, 51% of S&P 500 companies used some form of ESG metrics in their executive compensation plans, according to a report from Willis Towers Watson. Half of companies include ESG in annual bonus or incentive plans, while only 4% use it in long-term incentive plans (LTIP). A similar report from PricewaterhouseCoopers (PwC) found that 45% of FTSE 100 firms had an ESG target in the annual bonus, LTIP or both.

“We will continue to see the percentage of companies [linking ESG to pay] increase,” said Ken Kuk, senior director of talent and rewards at Willis Towers Watson. And although right now more than 95% of instances of ESG metrics are in annual bonuses, “there is a shift more toward long-term incentives,” he said.

A related survey by the firm last year, of board members and senior executives, revealed that nearly four in five respondents (78%) are planning to change how they use ESG with their executive incentive plans over the next three years. This reflects the current purpose-over-profit debate in the corporate world, with the environment ranking as the top priority.

Pressuring the fossil fuel industry

In 2020, petroleum accounted for about a third of U.S. energy consumption, but was the source of 45% of the total energy-related CO2 emissions, according to the U.S. Energy Information Administration. Natural gas also provided about a third of the nation’s energy and produced 36% of CO2 emissions. Oil and gas companies have largely abandoned coal, which accounted for about 10% of energy use and accounted for nearly 19% of emissions.

Investors are increasingly focused on ESG, and more have been pressuring the fossil fuel industry to shrink its global carbon footprint and the associated risks to operations and bottom lines. “The increase in momentum that the investment community has put around ESG is driving the discussion into climate [change],” said Phillippa O’Connor, a London-based partner at PwC and a specialist in executive pay. “We can’t underestimate the impact that investors will continue to have for the next couple of years.”

Investor input played a decisive role in Shell’s seminal decision, as well as those at competitors that followed suit. And while executive compensation wasn’t high on the docket at Exxon Mobil’s shareholder meeting last spring, the industry was gobsmacked when the climate-activist hedge fund Engine No. 1 won three seats on its board of directors. The coup, as it was roundly described, may ultimately deemphasize Exxon’s reliance on carbon-based businesses and move it more toward investments in solar, wind and other renewable energy sources — and in the process lead to ESG-linked pay packages.

“We look forward to working with all of our directors to build on the progress we’ve made to grow long-term shareholder value and succeed in a lower-carbon future,” Exxon chairman and CEO Darren Woods said in a statement shortly after the proxy vote.

Meanwhile, financial regulators also are eyeing climate change as a factor for investors to consider. The Securities and Exchange Commission has indicated that ESG disclosure regulation will be a central focus under new Chair Gary Gensler, from climate to other ESG factors such as labor conditions.

There’s nothing novel about incentivizing corporate leaders to hit predetermined targets, particularly for increasing revenue, profits and shareholder returns by certain increments. Oil and gas companies, because of their hazardous extraction operations — from underground fracking wells to offshore drilling rigs — have for years established incentives for improving workplace safety.

Following the Enron accounting and fraud scandal in 2001, meeting new governance mandates (Sarbanes-Oxley Act) was the basis for rewards. Then came added remuneration for achieving internal goals set for quality, health and wellness, recycling, energy conservation and community service — wrapped into corporate social responsibility. Sustainability then became the catch-all for establishing executive performance metrics around environmental stewardship, diversity, equity and inclusion (DEI) in the workplace and ethical business practices — all of which now reside under the ESG umbrella.

ESG is tricky, and existing carbon targets have critics

Although the trend is expected to continue, experts warn that the process can be tricky, and targets designed by oil and gas companies to combat climate already have critics.

Including emission-reduction targets in executive pay packages may compel oil and gas companies to walk their public-relations talk about being good corporate citizens. Yet the methodology can be challenging. “It’s not the what, but the how,” said Christyan Malek, an industry analyst at JP Morgan. For example, a company can state how much is has lowered its global carbon emissions in a given year. “But that’s very limited,” he said, “because they’re not disclosing their emissions by region,” which can widely vary from one location to the next. “When it comes to carbon intensity, it’s in the [overall] portfolio.”

Or a company can ply in greenwashing through carbon offsets. “I have massive emissions, so I’ll [plant] a bunch of forests, and that way I neutralize myself,” Malek said — while the company is still producing the same amount of emissions. “You’re disclosing in a way that’s better optically than it is in reality. Disclosure has to work hand in hand with compensation.”

The optics of oil and gas companies paying well for doing good might help the industry’s image among a general public increasingly concerned about the calamitous impacts of human-induced climate change, exacerbated by the latest, and most dire, related U.N. report and a string of deadly floods, hurricanes, heatwaves and wildfires. But experts focused on climate and the energy sector note that sector targets often don’t go far enough, related to reducing intensity of fossil fuel operations, not underlying production of fossil fuels, and dealing only with Scope 1 and Scope 2 emissions, not the Scope 3 emissions which are the largest share of the climate problem.

O’Connor said that companies should be careful how they align ESG metrics with incentives. “ESG is a broad and complex set of metrics and expectations,” she said. “That’s one of the reasons why we’re seeing a number of companies use multiple metrics rather than a single measure, to get a better balance of considerations and perspectives across the ESG forum. There isn’t a one-size-fits-all policy in this, and there’s a danger in trying to move too quickly and revert to some kind of standard.”

The pandemic placed an unexpected hard top on compensation incentives in 2020, and with the global economy decimated last year, Shell’s remuneration board decided to forego bonuses for CEO Ben van Beurden, CFO Jessica Uhl and other top executives, and there was no direct link in their LTIPs to delivery of energy transition targets.

The energy sector has roared back this year amid strong global economic growth and demand for oil and gas amid lower supply has led to a spike in prices. That could incentivize oil and gas companies to produce more, but at the same time, compensation to to energy transition targets ae going up. At Shell, the 2021 annual bonus is targeted at 120% of base salary for the CEO and CFO, which remain the same as set in 2020, at $1,842,530 and $1,200,900, respectively. Within this, though, progress in energy transition is now up from 10% to 15% of the total amount that can be awarded. In addition, energy transition is part of the LTIP which vests three years in the future, based on Shell’s 2020 annual report.

Oil prices have rebounded sharply amid limited supply and demand growth out of the worst of the pandemic, but more oil and gas companies are tying near- and long-term executive pay to energy transition targets, led by Royal Dutch Shell.

According to a 2019 McKinsey study, there is growing evidence that adopting ESG is not just a feel-good fad, but that when done right creates value. And that may be enough to convince more oil and gas companies to link it to compensation, especially because it’s one of the few industries where ESG is existential, Kuk said. “Sometimes we think about ESG in the context of doing good, and it is doing good. But I still believe there has to be a business reason for everything. And it’s only when you have a business reason that ESG will prevail.”

The deleterious role that carbon emissions play in climate change will continue to put pressure on oil and gas companies to embrace the International Energy Agency’s goal of achieving net-zero by 2050. Beyond complying with regulatory mandates, though, linking reduction targets to executives’ compensation may be a critical driver in affecting change. 

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EnviroSpark just got $50M, and it’s ready to hire Tesla Supercharger team talent

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EnviroSpark just got M, and it's ready to hire Tesla Supercharger team talent

Thanks to a new $50 million investment, Atlanta-based EV charging company EnviroSpark wants to hire as many of the Tesla Supercharger team as possible.

The $50 million investment from mid-market infrastructure equity investment firm Basalt Infrastructure Partners will allow EnviroSpark to rapidly grow its owned and operated network across the US, innovate technologies, and make its EV infrastructure more accessible and sustainable.

EnviroSpark wants to do that with laid-off talent from Tesla, specifically the Supercharger team, which was laid off just over a week ago. This pop-up is on its website’s homepage:

Aaron Luque, cofounder and CEO of EnviroSpark, said in an emailed statement:

This is the single greatest talent acquisition opportunity since I founded EnviroSpark. Tesla had been able to scale their charging infrastructure due in no small part to the talented employees on the Supercharger team.

With the help of our recent investment from Basalt, we’re looking to bring on as many of these highly skilled individuals as possible to achieve our ambitious growth objectives.

Following a successful $15 million funding round led by Ultra Capital in 2022, EnviroSpark has made a name for itself in the EV charging market. With more than 8,200 charging plugs all over North America, the company is in a great position to help accelerate EV adoption.

EnviroSpark has recently forged strategic partnerships with RaceTrac, Waffle House, IHG Hotels & Resorts, and Ford Dealerships. These collaborations complement longstanding relationships with Tesla, Volkswagen, Volta, and Starwood Capital Group.

It’s also partnered with the US federal government through the General Services Administration to advance commercial and government EV adoption and secured National Electric Vehicle Infrastructure (NEVI) awards in Georgia and Tennessee.

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I got a rare look behind the scenes at Ananda’s e-bike systems factory in China

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I got a rare look behind the scenes at Ananda's e-bike systems factory in China

I recently took a trip to China in order to see for myself how many of the e-bike drive systems and components we use daily in the West were originally designed and produced. And no journey to view the origins of the most popular e-bike components would be complete without a visit to Ananda, one of the largest and most advanced OEMs in the industry.

I was able to visit the company’s R&D headquarters in Shanghai as well as one of their factory locations in Wuxi, giving me a close look at the design process and how those designs get manufactured into real e-bike systems.

After starting operations in 2001, Ananda has focused purely on micromobility systems since 2011. They’ve long built many types of hub motors for e-bikes and scooters, but expanded into their own mid-drive electric bike motors in 2017. And the company’s scale has grown massively ever since.

You might not have heard of the company yet, largely because they rarely advertise which major e-bike brands use their motors, controllers, and other components. But to put things in perspective, they produced around 6.5 million electric motors last year. Most of their products are built for the massive domestic market, but around 600,000 were exported to Europe and North America, where they made their way onto e-bikes we know and love. Many of the biggest brands use their systems. There’s a good chance you’ve got an Ananda motor, controller, or other hardware in your garage right now and just don’t realize it.

The company is constantly growing and a new Vietnamese factory is currently in the works, but because the North American and European markets are booming for Ananda, the company is currently working on setting up a new European factory. Ananda also recently opened up its first North American service center in Los Angeles and is expanding its local US-based team.

Ananda is responsible for designing and producing just about every component used in an electric bicycle other than the batteries and BMS. However, they work with several battery manufacturers and provide testing to certify compatibility with their extensive drive system lineup.

Their core competency is in research and development, followed by production implementation. While some companies merely design components produced elsewhere and others operate factories to manufacture third-party designs, Ananda does it all in-house, focusing on a wide range of systems ranging from entry-level to premium components.

And while Ananda started as mainly a component maker, offering their own motors and controllers, they’ve since evolved into an entire system integrator. Now they supply many e-bike brands with an entire e-bike system, minus the battery.

That all-encompassing approach has necessitated a huge footprint, with the company touting over 1,000 employees and over 200 automated machines, 70 of which are just for automated coil winding.

Ananda is also one of the most mature mid-drive motor makers in the Chinese market, now developing several higher-power models for the North American market. And with an obvious understanding of what Americans want, they explained to me that all North American motors they develop are compatible with throttles. Talk about knowing your audience!

Touring Ananda’s R&D facility in Shanghai

My tour at Ananda started in the R&D center. There, the company has a team of engineers and designers working on every component of e-bike drive systems.

A major piece of that design and development process is ensuring that each component can withstand the rigors of daily use in the harsh environments that e-bikes and e-scooters experience everyday.

I walked through rows of machines operating every type of torture test you can imagine. I saw motors being heat-shocked with high and low temperatures. I saw tanks with motors undergoing humidity testing, alternating between humid and arid conditions. Rain machines were running to keep a constant spray of water on the components. Each machine looked like a progressively worse type of condition that I’d definitely avoid putting my own e-bike through.

There were robotic button pushers who simply pushed buttons on handlebar displays tens of thousands of times. Motors were shock-loaded to simulate sudden stops and hard braking during operation; Imagine a broomstick in the spokes situation that instantly grinds the motor to a halt.

Dozens of dynamometers were set up for long-term testing, performing months of testing on constantly running motors.

Entire e-bikes were installed in full-scale testing machines to simulate long-term testing of complete systems over tens of thousands of miles.

In other parts of the R&D center, banks of 3D printers whirred away, producing prototypes that may become entirely new drive systems. One such system currently in the works is an e-bike hub motor that includes a three-speed transmission inside the hub. It will essentially become the marriage of a hub motor and an internally geared hub, offering the best of both technologies.

Across the hall, old-school technology in the machine shop contrasts with the high-tech machines, offering no-less-critical machining capabilities for fabricating and modifying new designs.

Teams of bike mechanics install test systems on mule bikes while test riders put them through miles and miles of real-world riding verification.

I even got to have a go myself, donning a company helmet and testing out several of the new motors and drive systems that Ananda has produced. I tried an M100 mid-drive motor that felt like a perfect balance of power and comfort, as well as a more powerful 750W M6100 mid-drive motor that was a lot of fun but, frankly, probably more power than I truly needed most of the time. That model is destined for the US market and is likely to be popular among riders seeking powerful performance.

I even tested a moped-style hub motor system complete with cast wheels that I was sure included a torque sensor in the drive system due to how responsive the pedal assist was. Only afterward did I learn it was actually just a really nicely designed cadence sensor that they had managed to remove almost all the pedal lag from.

After testing the e-bikes, they showed me their new diagnostic tools, which include software designed to easily diagnose issues that could arise over a lifetime of use. Instead of having an unclear error, shops or companies can simply use the software to run checks on the bikes and find out exactly what could be causing a specific issue.

Ananda’s manufacturing facility in Wuxi

The second half of the day was spent at one of Ananda’s factories, where I saw their manufacturing firsthand.

The first step is the inspection and analysis of components from Ananda’s suppliers. Workers inspect these components down to the micron level, ensuring everything is manufactured to spec. Even a small deviation in a motor shell, for example, could result in extra motor noise and increased wear.

That level of precision inspection is what separates the truly high-quality manufacturers who understand the level of accuracy necessary for consistently performing and reliable products.

From there, we moved to the factory floor, where motors are manufactured. The first step is the winding of the motor cores, which involves spools of copper wire being intricately wound around the motor’s stators.

If you’ve ever seen the way electric motors were built in years past, and honestly still in some places, you’ve probably seen videos of women hunched over tables using their delicate fingers for hand-winding motors. But Ananda’s over 70 automated motor winding machines make that a thing of the past.

Now, motor cores are not only wound without human labor, but they’re also done so much more accurately and uniformly. The beauty of robots is that they never make mistakes or get tired and sloppy; they just wind up every single motor the exact same way each time.

Those wound motor cores are then inspected before heading on to the next step of assembly into motor casings. The assembly process is a combination of manual and automated tasks. High-precision jobs, such as placing the gears and building the internal transmissions, are done using robotic assembly machines.

These sub-assemblies are then passed onto the rest of the assembly line, where they are joined by hand with the motor cases. A laser engraver serializes each motor shell along the way, and then it heads to sound testing to ensure it powers up and operates as quietly as it should.

Some motors are assembled using automated machinery, ensuring precision placement of the motor gears and components.

Each finished motor is scanned into the database and then packaged up for shipment to an OEM that will build it into an e-bike, e-scooter, or e-moped. Years ago, e-bike motors were always shipped in foam packaging for protection. But Ananda has switched to much more environmentally responsible paperboard packaging, offering equal protection without using such harmful materials that are not able to biodegrade.

Interestingly, in another part of the factory, I saw many of the same torture testing machines that I had first seen in the R&D center back in Shanghai. As I quickly understood though, this was all part of the quality control process. The same way new designs get torture tested during development in Shanghai, the factory does the same extensive testing as part of spot inspections for each batch of components produced. The motors undergo similar loading and accelerated lifespan testing to ensure they are all performing as intended, and that there aren’t any deviations from one production batch to another.

The next stop was to see how controllers were made, and that involved getting suited up and heading into the company’s clean room facility. There, automated pick and place machines built up circuit boards that then passed through various soldering machines to produce the circuit boards. The process and outputs are all monitored using high-precision 3D optical imaging, allowing the workers to inspect each solder joint from many angles and ensure all the components are properly soldered to the board. Many of these components are too small to inspect with the naked eye, and so this type of imaging and analysis allows the company to ensure every tiny little leg and every minuscule drop of solder is not only correctly placed, but also properly soldered so it doesn’t shake loose 10,000 miles from now.

Next, conformal coating is applied to electronics, creating a waterproof barrier that prevents water vapor from corroding the metals and circuits.

Each of these steps is a small but critical part of the manufacturing process, ensuring that the components produced in Ananda’s factories perform their required functions not just at the start of a product’s life, but also for many years to come.

Rooftop solar array

The last stop of the tour was something I was surprised to see. Before I left the factory, I was led up to the roof where a large solar array gathered much of the energy used by the factory.

While it doesn’t cover 100% of the company’s energy usage, it does offset a large portion and helps to further promote the same message that the electric vehicles using Ananda’s components share: that how we generate and use energy has a major impact on our environment.

These types of steps go a long way to reducing our own harmful effects on the planet. Humans will always need to travel around their cities, and using two-wheeled electric vehicles is one of the most energy-efficient ways to do it. If companies can offset as much of the emissions generated from producing those vehicles, then all the better.

The takeaway

I’ve known of Ananda’s electric motors for years, and in fact built some of my first e-bikes with their motors over a decade ago. But I had no idea how large Ananda had grown and just how much of the entire e-bike system they now produce.

Far from just another e-bike motor manufacturer, Ananda is truly an entire system integrator. Producing everything from displays to controllers and every type of motor you can think of, Ananda has positioned itself as a leader in the micromobility space.

You don’t make 10 million motors a year and several million more controllers and other components without learning a thing or two about how important the quality and precision of those manufacturing processes truly are.

The company has obviously taken all of that learning to heart, developing a high-tech and highly automated design and manufacturing system that has grown into a massive operation.

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BP tells property owners left in the dark by Elon Musk firing Tesla charging team to call them

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BP tells property owners left in the dark by Elon Musk firing Tesla charging team to call them

BP pulse, the fossil fuel giant’s EV charging division, is asking property owners left in the dark by Elon Musk firing Tesla’s charging team to give them a call as it plans to scoop up some of the sites.

Last week, Elon Musk fired Tesla’s entire charging team to make a statement against the head of the team who was pushing back against layoffs.

We reported that the move resulted in Tesla backing out of leases on planned Supercharger stations and a lot of confusion amongst its partners in ongoing projects.

While this undoubtedly will result in Tesla’s slowing down its charging station deployment, it is an opportunity for other companies.

Sujay Sharma, chief executive officer of bp pulse Americas, said in an interview with Bloomberg that site owners that were working with Tesla before should come:

“If there are stranded real estate partners who are looking for someone to call, they should feel free to pick up the phone and call me or look me up on LinkedIn.”

BP is also looking to scoop former Tesla charging employees.

Last year, Tesla sold $100 million worth of white-label Supercharger hardware to BP.

Electrek’s Take

As I said on the podcast last week, the only not-too-bad outcome to Elon firing Tesla’s charging team is if the workers get quickly scooped up by other companies looking to heavily invest in charging electric vehicles.

Those employees can bring back some of their projects that Tesla dropped, but even then, it will undoubtedly slow down EV charging deployment, especially in North America. It could potentially come back up after all those employees are settled.

Tesla could also sell BP more Supercharger hardware – though Tinnuci’s team was in charge of that too.

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