Stockholm (NordSIP) – “Investors seeking Paris-aligned portfolios cannot credibly invest in companies that are not themselves Paris-aligned,” states Maeve O’Connor, Oil, Gas and Mining Analyst at Carbon Tracker during the launch of the non-profit think tank’s new report Paris Maligned II on 20 March 2024. The aim of corporate engagement initiatives like Climate Action 100+ (CA100+) is to use the combined power of large institutional shareholders to compel the world’s biggest emitters to make the transition towards low-carbon technologies. Asset owners typically refer to their ongoing stewardship efforts as a justification for retaining fossil fuel shareholdings. However, Carbon Tracker’s report reveals that no oil and gas company is yet taking the necessary action to align its activities with Paris climate targets.
The analysis of 25 oil and gas companies will be of interest not only to sustainable investors, but also universal owners mindful of transition risk exposure as well as financial institutions looking to manage their financed or insured emissions. Carbon Tracker based the alignment assessment on a combination of metrics designed to provide a holistic evaluation of each company: future investments, production plans, recent project sanctions, emissions targets, and remuneration incentives.
The 25 companies’ upstream portfolios were evaluated in the context of Paris-aligned International Energy Agency (IEA) demand scenarios such as the 1.5-degree Net Zero Emissions by 2050 (NZE) scenario, the 1.7-degree Announced Pledges Scenario (APS) and the non-aligned 2.4-degree Stated Policies Scenario (STEPS) scenario. With little or no space for additional fossil fuel extraction in the Paris aligned scenarios, the report highlights projects sanctioned by the likes of TotalEnergies, China National Offshore Oil Corporation (CNOOC), and Chevron that breach not only the NZE or APS but also the 2.4-degree STEPS scenarios.
Losers and no winners
The Carbon Tracker report provides an overall grade on a scale from A to H for each company based on the individually weighted alignment metrics. The resulting ranking reveals relative leaders and laggards, as well as very poor climate alignment across the entire industry. BP, the highest ranked firm thanks in part to planned reductions in production nevertheless scores a poor D grade. Companies with plans to stabilise their output such as Repsol, Shell and Equinor are rated E. ExxonMobil, Petrobras, Saudi Aramco, and ConocoPhillips languish at the foot of the rankings with G and H scores. The latter company, for instance, plans to increase its production by 47% in the period to 2032 from a 2022 base level. While Saudi Aramco aims to maintain oil output at current levels, it also targets a 43% increase in gas production by 2030.
With none of the 25 companies evaluated in the report displaying any reasonable alignment with the goals of the Paris climate agreement, institutional investors may call into question the effectiveness of several years of corporate engagement on the issue. Investors seeking to maintain a Paris-aligned portfolio will seek to divest if rapid progress is unlikely, and those operating a best-in-class engagement strategy can draw extra leverage from Carbon Tracker’s research to increase pressure on their investee oil and gas companies. With this objective in mind, the report includes a series of key engagement on specific topics designed to avoid obfuscation on the part of the oil companies.
