‘NOCs’ Knock Investors Off Net Zero Track

Engaging with state-owned firms is challenging and potentially less effective, Carbon Tracker warns. 

Investors that have set net zero targets for their portfolios have been cautioned to carefully evaluate their positions in majority state-owned oil and gas laggards. 

The latest annual edition of the ‘Absolute Impact’ report, published by financial think tank Carbon Tracker, has assessed and ranked the emissions reduction targets set by 25 of the world’s largest oil and gas companies against its ‘Hallmarks of Paris Aligned Emissions Targets’ criteria.  

The criteria evaluates whether corporate targets cover the full lifecycle emissions of their products across Scopes 1-3, target net zero by 2050 on a full lifecycle basis with interim targets. It also considers whether they take account of worldwide emissions from all projects in which they have a stake, including sales of products they refine from crude oil brought from other countries. 

For the first time, the assessed pool included five majority state-owned national oil and gas companies (NOCs). But Carbon Tracker chose to exclude fully state-owned NOCs and companies based in Russia, describing them as “[firms] over which investors have little influence”.  

The targets of 24 of the companies were found to not be aligned with the goals of the Paris Agreement. The report noted the five NOCs – Saudi Aramco, Petrobas of Brazil, and China’s Sinopec, PetroChina and CNOOC – and ExxonMobil have the weakest targets of the pool.  

“If an investor is claiming they are targeting a Paris-aligned portfolio and investment policy whilst being invested in a company that is not Paris-aligned, then they have to be very confident that their engagement strategy is going to affect change,” Mike Coffin, Carbon Tracker’s Head of Oil, Gas and Mining and co-author of the report, told ESG Investor.  

Due to the fact national or provincial governments have majority ownership of state-owned companies, however, one of investors’ most powerful tools – engagement – is far more challenging and potentially less effective, Coffin said.  

“If the investor acknowledges this fact, then it’s hard to see how they could remain invested in a carbon-intensive NOC that is underperforming in the climate transition and still claim their portfolio is Paris-aligned.” 

The report said that CNOOC only operates upstream assets, so does not need to account for emissions from third-party crude. Further, Petrobas, an integrated producer, set its operational emissions targets on an absolute basis. Both NOCs outperformed ExxonMobil, which has only set targets on an intensity basis.  

The world’s biggest oil major, Saudi Aramco, was found to have the weakest climate transition targets of the 25 assessed oil and gas majors, as it is the only company in the assessed pool to restrict its emissions-reductions goals to wholly-owned operated assets, excluding those that may be co-owned by other investors.  

“Investors prioritising sustainability need to consider their positioning in companies like Aramco, which is very bullish on future oil demands,” said Coffin.  

Aramco announced record-breaking profits of US$161.1 billion in 2022, a 46.5% increase on the year before, in the wake of the energy crisis prompted by Russia’s invasion of Ukraine.  

The NOC is planning to increase oil production capacity from 12 million barrels per day to 13 million by 2027.  

Last month, a panel of UN-appointed human rights specialists sent letters to Aramco and its financiers – including BNP Paribas and Goldman Sachs – warning that the company may be in violation of global human rights rules due to its significant contribution to climate change. This follows a legal complaint filed against Aramco by environmental law firm ClientEarth in 2021. 

Climate backsliding 

All 25 oil and gas companies’ climate plans lack credibility, the report said, citing their dependence on divestments to make space for new projects without reducing the emissions of assets sold, as well as banking on emissions mitigation technologies that remain unproven at scale, like carbon capture and storage (CCS) and third-party carbon offsets.  

Following the onset of the energy crisis prompted by Russia’s invasion of Ukraine, several of the assessed companies have rowed back on their climate ambition. Earlier this year, BP scaled back its 2030 target from cutting emissions by 40% to 25%.   

Despite this, Coffin maintained that BP is actually “one of the more relatively progressive of the assessed companies”. According to the report, it has the fourth most credible net zero targets of the 25 firms. 

Of those assessed, only Eni has targets that are “potentially” Paris-aligned, the Carbon Tracker report said, but it questioned the credibility of the company’s plans, due to its “reliance on asset sales”, CCS and carbon offsets.  

Other European oil and gas companies filled the top rankings, including TotalEnergies and Repsol, which have 2050 net zero targets and interim absolute emissions reductions by 2030 targets that cover the full lifecycle of their products.  

The highest ranked US company, Occidental Petroleum, has a 2050 net zero goal covering full lifecycle emissions, but no interim targets.  

Earlier this year, Carbon Tracker published research that unveiled the continued ties between members of the Net Zero Asset Managers initiative (NZAM) and laggard oil and gas majors, noting that 25 NZAM members, alongside 65 other asset managers, have collectively invested US$417 billion into 15 of the world’s largest oil and gas companies.  

Carbon Tracker developed a Global Registry of Fossil Fuels in 2022 to serve as a public database of emissions from fossil fuel reserves and production worldwide and track their impact on the global carbon budget.  

“It’s important that investors effectively screen and evaluate the assets in their portfolios and understand that not all net zero commitments made by companies are the same,” said Coffin. 

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