Oil and Gas Sector “Alarmingly Unprepared” for Transition – ESG Investor

A joint TPI-CA100 evaluation has discovered underwhelming progress on company local weather disclosures and transition efforts. 

European and North American oil and fuel majors are underperforming on key climate-related efficiency measures utilized by investor members of the Local weather Motion 100+ (CA100+) engagement initiative. 

The evaluation and evaluation, which had been performed by the Transition Pathway Initiative (TPI) towards the Internet Zero Normal for Oil and Fuel (NZS O&G), discovered that present local weather disclosures made by the ten assessed oil and fuel corporations had been “inadequate” for buyers to precisely gauge transition danger. 

The NCS O&G offers 90 indicators to look at an oil and fuel firm’s transition technique, together with its fossil gas manufacturing plans, methods to diversify into low-carbon actions, and methane commitments. It additionally considers the extent to which an organization’s disclosures align with completely different local weather situations, such because the Worldwide Power Company’s (IEA) internet zero pathway. 

“The inaugural evaluation of the NZS O&G delivers a transparent message: whereas sure firms showcase commendable strides in the direction of sturdy local weather technique, the general trade panorama stays alarmingly unprepared for the transition,” mentioned Jared Sharp, Undertaking Lead for Internet Zero Requirements on the TPI Centre.  

“Whereas the outcomes are sobering, they underscore the urgency for extra motion. It’s crucial for each buyers and trade to pivot in the direction of methods that minimise transition danger and drive innovation for a viable vitality future.” 

Whereas a number of firms have set overarching internet zero targets, there’s an absence of knowledge on essential components, the evaluation mentioned, resembling carbon seize or upstream manufacturing. 

The very best performing firm met simply 52% of the general metrics, with robust performances on methane, manufacturing and neutralisation subjects. It carried out extra strongly on local weather options, the place it met 81% of the metrics. 

Though not one of the firms had been totally aligned with the IEA’s internet zero pathway, the diploma of misalignment “various considerably”, CA100 famous.  

Final yr, IEA Head Fatih Birol warned that firms seeking to improve fossil gas manufacturing had been contradicting objectives to cease international warming. 

Leaders and laggards  

The evaluation additional famous a divergence in efficiency between European and North American corporations. 

European oil and fuel firms usually carried out higher on local weather disclosures than their US-based counterparts, set extra aligned local weather targets, and invested extra in local weather options. On the latter, US-based firms met simply 3% of NZS metrics assessing local weather options on common. 

Total, the assessed pool of firms – which included the likes of BP, TotalEnergies and Shell – met simply 19% of NZS sector-specific metrics. 

“COP28 underscored the urgency of quickly decarbonising the oil and fuel sector,” mentioned Andrew Logan, Senior Director for Oil and Fuel at US-based investor community Ceres. “This evaluation makes clear that the trade is falling properly wanting the mark, even in areas like methane mitigation, the place there was significant progress.” 

There have been, nonetheless, silver linings within the report’s findings.  

“There may be appreciable variation within the diploma to which firms are misaligned with Paris, which suggests there’s each progress on which to construct and clear proof that investor engagement to date has had an impression,” Logan added.  

Work in progress 

The NZS O&G was launched final yr to enhance CA100’s Internet Zero Firm Benchmark, and assist buyers seeking to establish their company engagement priorities and perceive their portfolio publicity to transition dangers. Its publication adopted a two-year session course of led by the Institutional Traders Group on Local weather Change (IIGCC).  

CA100 unveiled its second section in June 2023, which can run till 2030. A number of the modifications it launched included a shift in focus from corporates’ climate-related disclosure to the adoption of local weather transition plans, the implementation of a governance framework, and taking tangible motion to scale back worth chain emissions. 

The engagement initiative has beforehand been criticised for failing to steer signatories sufficiently in the direction of its listed objectives, on account of a scarcity of transparency round goals, accountability and outcomes, probably exposing the initiative to greenwashing from signatories. 

In February, a small group of buyers introduced that they had dropped out of the CA100+ initiative. 

“The oil and fuel sector usually represents the most important and most concentrated supply of transition danger in buyers’ portfolios,” mentioned Dan Gardiner, Head of Transition Threat on the Institutional Traders Group on Local weather Change (IIGCC). “By exhibiting the extensive variation within the high quality of firms’ disclosure and diversification methods, this evaluation allows buyers to see the place this danger is most acute. Whereas a couple of firms have made progress, most are failing to set out even a fundamental transition technique.” 

The CA100+ initiative at present consists of greater than 700 buyers collectively accountable for over US$68 trillion in property. It focuses on engagement with over 170 carbon-intensive firms deemed important to driving the worldwide transition to internet zero emissions. 

CA100 has beforehand additionally revealed sector-specific internet zero technique steering for the meals and beverage, metal, electrical utilities, and aviation sectors.