The results show that current plans to change are not enough for investors to accurately measure the risk of change, which is a significant financial risk for high-emission companies on the Climate Action 100+ focus list.
- The results demonstrate that current plans to change are not sufficient for investors to accurately assess the risk of change, which is a significant financial risk for high-emission companies on the Climate Action 100+ focus list.
- There are big differences in the level of information disclosed by companies and regions, and some good practices are shown.
- The Net Zero Standard for Oil & Gas was created to help investors understand transition risks in their portfolios in order to protect shareholder value.
Climate Action 100+, the biggest investor initiative on climate change, has released assessments of ten oil and gas companies. assessments of ten oil & gas focus companies using the Net Zero Standard for Oil & Gas (NZS O&G). The evaluations were performed by the Transition Pathway Initiative Centre (TPI Centre) which has also published analysis of the main themes emerging from the data. supplementary analysis of the key themes emerging from the data.
European and North American companies such as Exxon Mobil Corp., Shell plc, Chevron Corp., TotalEnergies SE, ConocoPhillips, BP plc, Occidental Petroleum Corp., Eni S.p.A, Repsol S.A. and Suncor Energy Inc. were assessed using the NZS O&G.
The NZS O&G looks closely at each company’s transition strategy, including production plans and commitments to reduce methane. It also evaluates the level of climate information provided by the company, how well it aligns with the climate scenario, and efforts to expand into low carbon activities. IEA’s NZE climate scenario, as well as strategies to diversify into low carbon activities.
The NZS O&G was made to complement the Climate Action 100+ Net Zero Company Benchmark, giving investors a tool to evaluate climate-risk disclosures and alignment of transition strategies with the Paris Agreement goals, which aim to reduce transition risk and protect shareholder value.
Key findings
- The current information provided is not enough for investors to accurately assess transition risk: Although several companies are aiming for net zero, the lack of information on important aspects like carbon capture or upstream production makes it hard for investors to understand how they will achieve that, and the transition risk each company faces. Overall, companies only met 19% of the sector-specific metrics in the Net Zero Standard.
- Peers can adopt good practices and investors can encourage them: The top-performing company met 52% of the metrics overall, with strong performances on methane, production, and neutralization topics. The same company also did well on climate solutions, meeting 81% of the metrics. While no company aligns with the IEA’s NZE scenario, they differ in their level of misalignment.
- Company results differ between Europe and North America: Overall, European companies disclose much more information, have more aligned targets, and invest more in climate solutions. North American companies still do not plan to significantly diversify into low carbon energy production, meeting only 3% of the metrics assessing climate solutions.
- Disclosure captures different transition strategies: Different companies are dealing with the challenges and opportunities of the transition in various ways. For instance, nine out of ten companies have set targets to reduce their operational emissions to net zero, but only two have convincing plans to address methane, which is a major part of these emissions. One company seems to be relying solely on neutralization, while others consider it suitable for their remaining emissions. North American companies are expanding into low-carbon activities, but their plans focus exclusively on fuels rather than renewable electricity.
Full analysis by TPI Centre is available here.
Dan Gardiner, Head of Transition Research, IIGCC – the Climate Action 100+ investor network that led the development of the NZS O&G – commented: “The oil & gas sector typically represents the largest and most concentrated source of transition risk in investors’ portfolios. 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.”
Jared Sharp, Project Lead for Net Zero Standards, TPI Centre, said: “The first assessment of the Net Zero Standard for Oil and Gas sends a clear message: while some companies demonstrate commendable strides towards a strong climate strategy, the overall industry landscape is still unprepared for the transition. On average, only 19% of metrics are met by the companies assessed. Although the results are concerning, they highlight the need for more action. Investors and the industry must urgently shift towards strategies that reduce transition risk and foster innovation for a sustainable energy future.”
Andrew Logan, Senior Director for Oil & Gas at Ceres, an investor network that co-coordinates CA100+, said: “COP28 highlighted the urgency of rapidly decarbonizing the oil and gas sector. This assessment makes it clear that the industry is falling well short of the mark, even in areas like methane mitigation where there has been meaningful progress. While several companies in the sector have committed to eliminating emissions by the middle of the century, this analysis emphasizes that targets, no matter how ambitious, are only a starting point for a more comprehensive strategy that includes specifics on how those goals will be achieved. Nevertheless, there is some positive news here. There is significant variation in the extent to which companies are not in line with the Paris Agreement, which means that there is progress to build on and clear evidence that investor engagement has had an impact.”
About the Net Zero Standard for Oil and Gas
The NZS O&G was created to help investors understand the transition risk in their portfolios and prioritize their corporate engagement effectively.
Its development followed a two-year consultation process led by IIGCC with support from the TPI Centre, investors, and regional investor groups. Tentative indicators were published in September 2021 and subsequently tested in a pilot study covering five major European oil and gas companies.
The NZS O&G measures are meant to go along with the Disclosure Framework of the Climate Action 100+ Net Zero Company Benchmark. The Standard is also made to help and go along with Global Sector Strategies engagement, as described in Climate Action 100+’s phase two strategy.
Climate Action 100+ will evaluate the impact of the NZS O&G workstream later this year, including an update of the company assessments and the possibility of expanding coverage, if it is seen as successful. This potential expansion and additional work on sector standards and Climate Action 100+ linked assessments depend on the strategic priorities and resources of the initiative and its academic partner.
The Climate Action 100+ full disclaimer can be found here.
