Industry

Oil and Gas Sector “Alarmingly Unprepared” for Transition

A joint TPI-CA100 assessment has found underwhelming progress on corporate climate disclosures and transition efforts among leading firms. 

European and North American oil and gas majors are underperforming on key climate-related performance measures used by investor members of the Climate Action 100+ (CA100+) engagement initiative. 

The assessment and analysis, which were conducted by the Transition Pathway Initiative (TPI) against the Net Zero Standard for Oil and Gas (NZS O&G), found that current climate disclosures made by the ten assessed oil and gas firms were “insufficient” for investors to accurately gauge transition risk. 

The NCS O&G provides 90 indicators to examine an oil and gas company’s transition strategy, including its fossil fuel production plans, strategies to diversify into low-carbon activities, and methane commitments. It also considers the extent to which a company’s disclosures align with different climate scenarios, such as the International Energy Agency’s (IEA) net zero pathway. 

“The inaugural assessment of the NZS O&G delivers a clear message: while certain companies showcase commendable strides towards robust climate strategy, the overall industry landscape remains alarmingly unprepared for the transition,” said Jared Sharp, Project Lead for Net Zero Standards at the TPI Centre.  

“While the results are sobering, they underscore the urgency for more action. It is imperative for both investors and industry to pivot towards strategies that minimise transition risk and drive innovation for a viable energy future.” 

While several companies have set overarching net zero targets, there is an absence of information on critical elements, the review said, such as carbon capture or upstream production. 

The best performing company met just 52% of the overall metrics, with strong performances on methane, production and neutralisation topics. It performed more strongly on climate solutions, where it met 81% of the metrics. 

Although none of the companies were fully aligned with the IEA’s net zero pathway, the degree of misalignment “varied substantially”, CA100 noted.  

Last year, IEA Head Fatih Birol warned that companies looking to increase fossil fuel production were contradicting goals to stop global warming. 

Leaders and laggards  

The assessment further noted a divergence in performance between European and North American firms. 

European oil and gas companies generally performed better on climate disclosures than their US-based counterparts, set more aligned climate targets, and invested more in climate solutions. On the latter, US-based companies met just 3% of NZS metrics assessing climate solutions on average. 

Overall, the assessed pool of companies – which included the likes of BP, TotalEnergies and Shell – met just 19% of NZS sector-specific metrics. 

COP28 underscored the urgency of rapidly decarbonising the oil and gas sector,” said Andrew Logan, Senior Director for Oil and Gas at US-based investor network Ceres. “This assessment makes clear that the industry is falling well short of the mark, even in areas like methane mitigation, where there has been meaningful progress.” 

There were, however, silver linings in the report’s findings.  

“There is considerable variation in the degree to which companies are misaligned with Paris, which means there is both progress on which to build and clear evidence that investor engagement thus far has had an impact,” Logan added.  

Work in progress 

The NZS O&G was launched last year to complement CA100’s Net Zero Company Benchmark, and support investors looking to identify their corporate engagement priorities and understand their portfolio exposure to transition risks. Its publication followed a two-year consultation process led by the Institutional Investors Group on Climate Change (IIGCC).  

CA100 unveiled its second phase in June 2023, which will run until 2030. Some of the changes it introduced included a shift in focus from corporates’ climate-related disclosure to the adoption of climate transition plans, the implementation of a governance framework, and taking tangible action to reduce value chain emissions. 

The engagement initiative has previously been criticised for failing to steer signatories sufficiently towards its listed goals, due to a lack of transparency around objectives, accountability and outcomes, potentially exposing the initiative to greenwashing from signatories. 

In February, a small group of investors announced they had dropped out of the CA100+ initiative. 

“The oil and gas sector typically represents the largest and most concentrated source of transition risk in investors’ portfolios,” said Dan Gardiner, Head of Transition Risk at the Institutional Investors Group on Climate Change (IIGCC). “By showing the wide variation in the quality of companies’ disclosure and diversification strategies, this analysis enables investors to see where this risk is most acute. While a few companies have made progress, most are failing to set out even a basic transition strategy.” 

The CA100+ initiative currently includes more than 700 investors collectively responsible for over US$68 trillion in assets. It focuses on engagement with over 170 carbon-intensive companies deemed essential to driving the global transition to net zero emissions. 

CA100 has previously also published sector-specific net zero strategy guidance for the food and beverage, steel, electric utilities, and aviation sectors. 

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