Shaping tomorrow’s energy system

REMI ERIKSEN

Welcome to Trust and transformations: leaders navigating change - a DNV podcast. I'm Remi Eriksen, group president and CEO of DNV. Our guest today, Helge Lund has one of the most eye-catching CVs in the corporate world. After two years as CEO of industrial conglomerate Aker Kvaerner, he got one of the most high-profile jobs in the energy industry when he became CEO of Equinor in 2004. Over the next decade, he and the team more than doubled the company's market valuation as the company strengthened its position as a major player in the global energy sector.

He then went on to lead BG Group before its takeover by Shell. Today, he's share out two of the world's largest companies - energy major BP and pharmaceutical company Novo Nordisk. Welcome.

HELGE LUND

Thank you, Remi - good to be here.

REMI ERIKSEN

Good to have you here. As the chair of two companies operating in very different sectors, how do you start your day to make sure you are on top of the latest developments?

HELGE LUND

So Remi, we have both been in business for decades and in big companies, but I must say the current situation is more challenging than I've seen in my career in business. You have wars, conflict, geopolitical tensions, radical technology development, polarising society. So there is an enormous news flow. I think the challenge is to try to distinguish between the noise and what really, really matters for big institutions.

So personally, every day I start the day by reading quite a few newspapers because I enjoy it, but that also because it's important to try to exactly do what we discuss to distinguish between noise and what really, really matters.

And of course, from time to time I listen to podcasts like this podcast.

REMI ERIKSEN

Very good. I want to talk about leadership, and I want to take us back to your first day at Equinor, or Statoil, as it was known then. Can you tell me what you were feeling that very first day, and how did you approach this big opportunity or challenge as a leader?

HELGE LUND

Equinor, or Statoil at that time, is a quite important company in Norway and it gets a lot of attention so to be fair and be honest I guess I had a little bit of nerves the first day at the job, and it's easy in those circumstances to think about the downsides and the risks and the issues, but it's not particularly helpful.

So, you know, maybe better to focus on what the team at Equinor could achieve together. So I focussed basically on three things the first few years at Equinor. One was to get the foundation right, having the right values, running our operations in an integrated way and with integrity. The other one was to set the clear strategic direction and at that time it was really to maximise the potential of the Norwegian continental shelf and then capitalise secondly on the technology and the capabilities that we had developed over 40 years in Norway, also to take international position. 

And the third topic that I really focussed on was how could we get the company as competitive as possible so that we could compete everywhere, wherever we were on established operations. 

REMI ERIKSEN

Your time in Equinor was marked a period of great expansion both on the Norwegian continental shelf, as you said, and internationally. It was a period that was post Kyoto Protocol and pre Paris Agreement. How do you reflect on that time today?

HELGE LUND

It's interesting to think back to the early 2000s. There was a phenomenal growth in energy demand driven by the growth in China and in emerging markets. And this phenomenal growth rate coupled or linked with quite weak exploration results in the oil and gas industry for quite a few years.

And of course, that led to not only increased energy demand and increased the demand for oil and gas, but also significant increase in the oil and gas prices and I think in the early 2000s, we looked at prices between $20 and $30 per barrel and in the next decade we had, you know, up to $147 per barrel or something like that.

So, at that time the focus was very much on making sure that you could produce as much as possible to serve the energy demand around the world. We also had a focus on how we could run our operations better from a safety perspective and as well as from an emissions perspective and on the latter, there were three areas we really focussed on.

One was to argue for and advocate for CO2 prices which was and still is important. Secondly was to work with others to invest in technology for carbon capture and storage. And the third area I forgot to highlight three areas were really how could we exploit the offshore capabilities in oil and gas and also establish a position into offshore wind. So, this was a little bit of the context at that time.

REMI ERIKSEN

Yeah, which has come on the table again today. Carbon capture and storage is more relevant than ever before and offshore wind as well.

So, I want to bring forward our discussion today. Some oil and gas majors have become energy majors. What is the North Star for these companies? Considering the demand for shareholder returns, what's being seen as relevant for the future, too?

HELGE LUND

This is a great question. In the BP case, we set a new direction for the company in 2020 and sort of the direction we set was to move from an international oil company to be an integrated energy company, which meant and still means that we invest in the current energy system, which is primarily oil and gas, but also established positions in low carbon areas where we had the right to play and could make it competitive.

We are now executing that strategy in a quite dynamic energy context. So global energy demand has never been higher and global emissions have risen every year since Paris. And investments in low carbon is increasing rapidly and actually double that in fossil fuels. And renewables is at the highest ever level but they're adding to fossil fuels demand not substituting the demand.

So, the demand for fossil fuel fuels is sticky and they still make up 80% of the energy system and demand is still rising.

So for BP in in practice, we are helping to supply the energy the world needs today and build out the energy system for the future. But it's also, I think, important to reflect on the fact that the energy transition is not a straight line and that drives in my mind a very important point.

We have set the strategic direction, but we have to find the best route by being pragmatic and adjusting as we are going. So energy companies need to be in sync with society and it is a question of pace and timing and we also have to, I think, think about this as a transition, not a disruption, because it's a transition that will take decades.

So transition companies have to stay financially strong throughout that period. We have to be able to attract capital and be competitive all the way through. So we continue in BP to transition the company, but we are doing it in a pragmatic and responsible, responsive way and are seeking to deliver unique and integrated energy solutions for countries, companies, and of course, our customers.

REMI ERIKSEN

Our research at DNV is put into what we call the energy transition outlook, and we say this year that we have reached peak energy emissions this year, driven by solar and batteries mainly and geographically by China. But the transition is going to slow to meet the Paris goals and ambitions. We think we are moving from 80/20 today for solar versus non-fossil to 50/50, percent, equal split by 2050, meaning a lot of oil and gas also in the energy mix by then and then that points to a 2.2-degree future and the window is getting quite small not to close that gap.

Over the years we have constantly said that it is not technology that is the barrier for faster transition, but policy. What would you like to see from policymakers to make that transition go faster?

HELGE LUND

I think it's a really important question. Sometimes I think we forget a bit the complexity of the energy system that we have built and it is worth perhaps considering a bit the magnitude of the energy system today. It's more than 100 million barrels per day of oil. Demand is more than 4,000,000,000,000m³ of natural gas every year. It's more than 8 billion tons of coal per year and on top of that, you have wind, solar, bioenergy, nuclear and hydroelectricity.

All of all this was built over like 150 years or so and now we have this challenge of reforming that system to a lower carbon system and we have to do it in decades and it's a formidable challenge not only for companies, but I think for societies, and I think politics and policies play a huge role in this. 

We have focussed on sort of three areas where policy can really, really make an impact and that is policies that can really stimulate demand for low carbon energy. I think that's important and there are many policies that can support that. Secondly, it's about permitting. We need to move at speed and permits can take years to come through and that's a big issue for the energy industry and for the transition of the energy system. And finally, predictability is critically important. We are making investments for decades, not for a few days and we are deploying billions and billions of dollars.

So a policy framework that is stable is very important. So those are at least three examples of areas where policy can make a big impact.

REMI ERIKSEN

We will talk about Novo Nordisk in a moment, but I just want to talk about how different corporate structures cope with transformations. Equinor has the status, the main shareholder. BP's publicly traded, whereas Novo Nordisk is partly owned by a foundation. From your experience, what are the main differences and are any of them better in coping with the transformations that we are up against?

HELGE LUND

I'm not sure that there is a model that is optimal for all purposes. I think different models actually can work in different circumstances. I have most of my experience from Novo Nordisk and from Statoil or Equinor at that time, with one controlling shareholder and then still the company is very publicly listed.

I have come to sort of conclude that for long term industries like energy and pharma, that's actually a really, really good model because the foundation of the shareholder can provide stability and make sure that the companies can have eyes on the long term in terms of technology development and investment in R&D.

At the same time, the companies are held accountable by financial markets. Every quarter where you have to measure yourself as the best one in your industry. So, it's actually a very strong ownership model and I think it can also lend itself very well to transformational challenges.

REMI ERIKSEN

You're also the chair of Novo Nordisk, as I mentioned earlier, which is known for insulin. More recently, it's obesity medication. What is it about the culture and leadership at Novo Nordisk that has created this success?

HELGE LUND

So Remi, Novo is today a global healthcare company, it was actually founded in 1923 and throughout that more than 100 years history, it has basically had the same purpose over that period to drive change, to defeat serious chronic diseases and built up, of course, on the strength in diabetes and insulin.

Another feature of the company, not only the very stable purpose, is also the ownership structure that we already, discussed. So we are controlled by a philanthropic foundation that provides stability. That has led to a situation where we can invest in people, in equipment, building long term relationships. And that has led to a high degree of innovation and then you come into a virtuous circle. You invest in innovation, you have higher innovation sort of pace, you have better products, you sell more, you earn more, and then you can reinvest into R&D again.

So I think the combination of the stability and the purpose and the ownership structure and some remarkable individuals say that within that system has led to the success of the company over many, many decades.

REMI ERIKSEN

The share price has increased around 350%, I believe, in the past five years - an incredible performance. How does the company deal with such phenomenal growth in both revenue and people, I presume, while staying true to the purpose, as you mentioned, and the values in the company?

HELGE LUND

It's a big challenge and to some extent the company has moved within the very few years from being a medium sized Danish, primarily, company and not many people knew about, globally, actually to be a global brand present in every corner of the world and also in segments that attract a lot of interest from the society and in general.

Also in that context to cope with that, in addition to the industrial challenges, I think the clear purpose has been important. I think that we are really deeply, deeply rooted into the values of all the company, which is also a permanent feature of the group. And finally, a very clear and an articulated way of thinking about what is our main contribution to society, and that is actually innovation and provide better medicines for our patients. And that is what's driving, I think, all the 70,000 or so employees of the company.

REMI ERIKSEN

Now I want to touch on technology for a moment. I believe artificial intelligence will have a profound impact on the pharmaceutical industry. What are your thoughts on that?

HELGE LUND

No, I agree fully to your assessment and AI in many ways are in the process of revolutionising, I think, many industries, including energy and pharma and from harnessing the vast amounts of data, you can improve efficiency, quality and safety in a better way.

You can also augment the skills and the experience of the human themes actually to do innovation better and faster and that's something that we are exploring in both companies and it's a huge opportunity for us and we need to chase it and see where it can really make a difference. But there are risks too that have to be governed and I think it's important that we think about that not only from a company perspective, but also in terms of global governance.

We need to think about the risks and the issues related with that as well. And within big global institutions ultimately I believe that the responsibility and accountability for the governance sits with the board of these companies.

REMI ERIKSEN

And there is also no industry where trust matters more. How do you view this at Novo Nordisk and how do you work with regulators and other stakeholders to maintain that trust?

HELGE LUND

The only recipe I know of is to be open, transparent, rooted in that purpose we talked about, rooted in in your values and that you are humble and that we are very clear on our key purpose is to serve our patients and face up to the challenges that we that we see from time to time in an open and transparent way.

REMI ERIKSEN

I’d like to finish with advice to our younger listeners from your vast experience across many sectors. What advice would you give to people embarking on their career today?

HELGE LUND

If I think about this from a leadership perspective, perhaps three observations. One - do not chase every opportunity and every ball that you see. I think it's important to make sure you think about, at least as a leader, where can you really make a difference for the organisation.

And in some way we have the picture of a successful leader is a leader that runs from meeting to meeting. He’s first one in the office in the morning, the last one leaving. I think that's the wrong picture of a good leader is actually to think about what are the 3 or 4 areas where he or she can really make an impact and make sure that you empower your people to solve other topics and tasks. So that’s one. The other one is the ability to adjust as you go and be flexible and adaptive and of course, analysis and risk management, all of that is incredibly important and we need to do it. But from time to time you cannot predict, so you have to prepare and be willing to be flexible. So I believe that's one important area to think about.

The final one is actually trust, which I think is relevant for this podcast. These big organisations are now so complex. You have to be able to collaborate across functions and subject matter experts. So how do you create, as a leader, an open, transparent and safe environment for people to try and without that collaboration is hard. I believe also, it's hard to challenge if you do not have trust. The more trust you have, the more you can challenge because people understand that you challenge the issue, not the person and that's important. And I know that, you at DNV focus a lot on trust and it's a great topic to focus on.

REMI ERIKSEN

Thank you so much Helge for joining me here today.

HELGE LUND

Thank you, Remi.

REMI ERIKSEN

Great to have you here.

HELGE LUND

Thanks.

REMI ERIKSEN

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