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Mixed investor messages as oil and gas majors come under fire for lack of climate ambition

Groups highlight oil and gas transition risk for investors, but shareholders continue to reject higher climate ambitions.
Melodie Michel
Mixed investor messages as oil and gas majors come under fire for lack of climate ambition
Photo by Chris LeBoutillier on Unsplash

Oil and gas majors are being criticised by investor groups and financial think tanks for their “insufficient” transition plans and misalignment with the goals of the Paris Agreement, even as their shareholders continue to reject proposals to raise climate ambitions.

Climate Action 100+, an investor coalition that recently lost members after raising the bar for how financiers should engage with large polluters in their portfolio, today published its first analysis of oil and gas companies’ transition plans, based on its new net zero standard for the sector.

The results of this analysis are damning: none of the 10 Western oil majors analysed are aligned with a 1.5ºC scenario (BP got the highest score at 28% alignment), and even climate disclosures remain insufficient, with just 19% of the metrics required by the Net Zero Standard disclosed on average.

Regional variations – but overall insufficient action

Companies were assessed based on the comprehensiveness of their disclosures, their targets and plans’ alignment with global decarbonisation goals, and their investments in low-carbon technologies.

European firms fared better than their North American counterparts: BP, Eni, TotalEnergies, Repsol and Shell received overall scores of 58% to 71%, compared to just 20% to 39% for Chevron, ConocoPhillips, Exxon, Oxy and Suncor.

“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,” said Dan Gardiner, Head of Transition Research at the Institutional Investor Group on Climate Change (IIGCC, the network that led the development of the oil and gas net zero standard). “While a few companies have made progress, most are failing to set out even a basic transition strategy.”

Investor expectations from oil and gas companies

Finding the right balance between meeting investor expectations around transition risks and the returns they expect to receive appears increasingly tricky for oil and gas firms, with shareholders repeatedly rejecting resolutions meant to raise climate ambitions.

In 2023, a study by the International Monetary Fund (IMF) also found that climate policies have “led to a global decline of 6.5% in investment among publicly traded oil and gas companies between 2015 and 2019”, suggesting that shareholders are unwilling to compromise on dividends for climate purposes. 

The tension between investors pushing for more action and those focused primarily on returns is rising, with ExxonMobil recently making history by suing activist investors to prevent them from submitting climate resolutions at its annual general meetings. 

The situation is made worse by the fact that returns from renewable projects have slumped in recent years, while geopolitical tensions have increased oil prices. According to Deloitte, in 2022, returns on major renewable electricity projects ranged between 6% and 8%. 

Oil and gas firms would expect double this ROI to invest in clean energy projects, even though most institutional investors surveyed would be happy with returns of 5-6%.

Source: Deloitte

Oil and gas misalignment with the Paris Agreement

The CA100+ report comes a few days after financial think tank Carbon Tracker published its own review of oil and gas companies’ climate strategies – with similar findings. 

Carbon Tracker’s report examined the 25 largest listed oil and gas companies and assessed their alignment with Paris climate goals based on five metrics: investment options, recent project sanctions, production plans, emission targets and executive remuneration.

According to the report’s author Maeve O’Connor, “none are currently aligned with the goals of the Paris Agreement, albeit there are clear differences between companies”.

BP scored the highest overall, while ExxonMobil, Saudi Aramco, Petrobras and ConocoPhillips were among the lowest rated. And despite their stated ambition to achieve net zero, the wide majority of oil and gas companies are planning to increase production in the near term – though BP is planning for a decline in the longer term.

Shell: reduced 2030 emissions target

Earlier this month, Shell reduced its emissions reduction expectation for 2030, from a 20% to a 15-20% cut in net carbon intensity. At the same time, it completely scrapped its 2035 target to reduce carbon intensity by 45%, with CEO Wael Sawan telling Reuters the goal was too “perilous” because "there is too much uncertainty at the moment in the energy transition trajectory".

It is not the first time oil and gas companies have backtracked on their decarbonisation ambitions: last year, BP lowered its 2030 Scope 3 emissions reduction target from 35-40% to 20-30%, Shell scrapped a pledge to cut oil production and Suncor shifted its focus away from the energy transition and even got rid of its Chief Sustainability Officer Arlene Strom.