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Graph of the week

Graph of the week

16-10-2020 | Vision

The oil & gas industry's climate pledges – what are they really worth?

  • Sylvia van Waveren
    Sylvia
    van Waveren
    Engagement Specialist

Investors have witnessed a flurry of significant climate announcements by European oil and gas majors this year. Several of these concerns published a wide variety of net-zero carbon pledges recently. These range from “aiming to become a net-zero emissions energy business by 2050 or sooner”, to “ensuring a competitive and resilient business model in the energy transition, fit for long-term value creation and in line with the Paris Agreement”. Often a smattering of good intentions, fine words, and all shoehorned into some very appealing marketing material.

But according to new research by the Transition Pathway Initiative (TPI), no major oil and gas company has aligned its emissions pathway with limiting climate change to 2°C or lower. This raises an important question among investors: what’s the real story, and what steps do we need to take to set things straight?

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TPI analyses used by many institutional investors

TPI is a global initiative led by Asset Owners and supported by Asset Managers representing over 80 investors with in excess of USD 22 trillion in combined Assets Under Management. TPI assesses the progress that companies are making on the transition to a low carbon economy. All TPI data are published via an open-access online tool.

TPI uses three benchmark scenarios:

  1. Paris Pledges, consistent with emissions reductions pledged by countries as part of the Paris Agreement (i.e. NDCs)
  2. Two Degrees, consistent with the overall aim of the Paris Agreement, albeit at the low end of the range of ambition
  3. Below Two Degrees, consistent with a more ambitious interpretation of the Paris Agreement and comparable to net-zero on carbon

The carbon performance of oil and gas companies

TPI assessed all global publicly listed oil and gas companies on their carbon performance. As the graph shows, it found just five companies that have set emissions targets in line with the pledges made by national governments (the NDCs). These are Eni, Equinor, Repsol, Shell and Total, all European companies.

Source: TPI, October 2020

Unfortunately these ‘Paris Pledges’ still leave the world on track for 3.2°C of warming, according to the United Nations Environmental Program (UNEP). So when judging companies’ emissions pathways against the more ambitious benchmark of limiting climate change to 2°C or below, none of the companies were found to be aligned.

Next steps for investors

Over the past year we have seen encouraging momentum partly driven by investor engagement. But with only five oil and gas concerns aligned with the bare minimum Paris Pledges, there’s clearly still a long way to go. 

More striking still is that, though there are some movements and improvements seen among European companies, this is definitely not the case with their US counterparts. US oil and gas giants have yet to take meaningful action to reduce emissions. The TPI study shows that the gap with their European peers is widening by the day.

To encourage further responsible behavior by the companies we invest in, we must continue stepping up our engagement activities. This is in the long-term interest of not only these companies, but also of our clients and society as a whole.

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