Study: Only two oil majors have coherent climate plans

Only two of the world's top 10 oil and gas majors have strategies in place to deliver significant reductions in their emissions intensity that are broadly in line with the climate action pledges made by governments as part of the Paris Agreement.

That is the conclusion of a new study from the investor-backed Transition Pathway Initiative (TPI), which assessed the carbon performance and goals of the world's 10 largest listed oil and gas companies.

It found that Shell and Total were the only two companies to have set "long-term ambitions that would result in a large reduction in their carbon emissions intensity" across their entire value chain. The report said these goals were compatible with the emissions pledges made by governments in 2015 as part of the Paris climate agreement, even if they still fell short of the emissions reductions needed to keep temperature increases below 2C.

BP, ConocoPhillips and Eni were found to have set emissions targets for their own operations, but the report warned that "the targets only reduce the companies' carbon emissions intensity by a small amount as they are focussed only on their operational emissions".

Meanwhile, Chevron, EOG Resources, ExxonMobil, Occidental and Reliance were accused of having no quantified targets in place to curb their emissions.

Titled Carbon Performance Assessment in Oil and Gas, the report is the latest in a string of studies to highlight how listed oil and gas firms are facing serious stranded asset risks if governments deliver on the decarbonisation pledges they have made under the Paris Agreement.

However, Professor Simon Dietz, who leads the TPI's research at the London School of Economics' Grantham Institute, said there were encouraging signs some oil majors were starting to engage with the risks to their business models presented by decarbonisation.

"The most significant finding is the emerging status of companies' future ambitions," he said. "It is encouraging to see two major oil and gas companies, Shell and Total, setting out long-term ambitions to reduce carbon emissions intensity in a way that is compatible with the government pledges made at the Paris climate agreement. However, there is a long way to go. None of the 10 largest global oil & gas firms currently set a path that would align them with limiting global warming to 2C or below before 2050. To reduce the carbon footprint of the sector these companies need to set more stretching low carbon targets."

Adam Matthews, Co-Chair of the TPI and director of ethics and engagement at Church of England Pensions Board, said investors regarded ambitious emission reduction targets as "essential".

"Forward looking lifecycle emission targets that take account of all the impact of a company's carbon footprint are essential if we, as investors, are going to have confidence in the strategy of companies we invest in," he said in a statement. "We want to see evidence of a company's commitment to the transition to a low carbon economy, and this latest research from TPI is not comfortable reading. We welcome Shell and Total's leadership in setting out their ambitions. We note that while they are moving in the right direction, and are ahead of their peers, this study suggests they are not yet ambitious enough to align with a pathway to below 2C of warming by 2050."

He added that targets that cover the whole of the oil and gas industry's value chain ere needed to provide a "transparent basis for asset owners to engage with oil and gas companies on their strategies to transition".

Emma Howard Boyd, chair of the Environment Agency and chair of the Environment Agency Pension Fund Investment Committee, said pressure on fossil fuel companies to adopt more ambitious targets was only set to intensify as governments consider strengthening their own decarbonisation targets.

"The UK government has asked the Committee on Climate Change to review whether legally binding carbon targets are compatible with limiting temperature increases to 1.5C above pre-industrial levels," she said. "The IPCC report shows even if we manage that we still face an exponential rise in physical impacts, like flood, drought, and the spread of disease. Corporate Boards, especially those in the oil and gas sector, need to get ahead of this or they are taking an unrecoverable risk with their companies' future."

A number of oil majors have pushed back against fears that their investment plans could result in stranded assets as new clean technologies emerge and governments introduce bolder emission reduction policies. They have argued that demand for fossil fuels will continue to grow in the coming decades and that they remain well positioned to transition towards lower carbon energy sources as required. Meanwhile, a number of companies have stepped up investments in renewables, low carbon technology R&D, biofuels, and electric vehicle infrastructure in recent years.

However, a growing number of investors and analysts remain concerned that the rapid emergence of electric vehicles and falling renewables costs, coupled with more stringent emissions policies, could see the value of oil and gas companies rapidly eroded if they fasil to develop credible decarbonisation policies.