Activist Investors Demand More Climate Action From Oil Majors

In the span of just six months, Europe’s biggest oil and gas companies raced to commit to net-zero emission targets in response to increased investor and societal demands to start addressing the elephant in the room.

Investors welcomed the steps and the setting of specific targets for carbon emissions reductions through 2050e, but many of them continue to view Big Oil’s climate commitments as insufficient to help the world achieve its Paris Agreement goals.

The current crisis, the uncertainty in the oil industry, and the uncertainty surrounding peak oil demand--whether past or future--represent a strategic opportunity for Europe’s biggest oil firms to embrace additional climate goals and to convince investors that their plans for the next three decades are both feasible and profitable.

Because, as-is, despite Big Oil’s pledges, some investors remain skeptical about how exactly the world’s largest oil firms would become net-zero emission companies by 2050 or sooner.

Environmentalists are not only skeptical – they say Big Oil’s pledges are just greenwashing. Greenpeace, for example, is criticizing the plans by oil majors, saying that nothing short of a complete stop to oil drilling would convince them that Big Oil--which happens to be in the business of oil drilling--is earnestly trying to do something good.

Investor groups are less harsh, and many of them have praised Europe’s biggest oil firms for their plans to become carbon neutral businesses by 2050.   Related: Why COVID-19 Won't Crush Renewables

Spain’s Repsol was the first oil and gas company in the world to pledge in December 2019 net-zero emissions by 2050. In just five months, Repsol was followed by BP, Eni, Shell, and Total – all of whom committed to net-zero emissions by 2050.

Still, some investors find the claims of Europe’s oil majors that they would be aligned with the net-zero or 1.5°C scenario overstated.

According to a new analysis from Transition Pathway Initiative (TPI) – an investor initiative backed by over $19 trillion of global capital - Shell and Eni now have the most ambitious emissions-reduction plans among the six European oil majors—Shell, Eni, BP, Total, Repsol, and OMV.

Eni has the most comprehensive strategic response with setting an absolute target to reduce all emissions, including Scope 3, by 80 percent by 2050, and disclosing the expected contribution of carbon capture and storage (CCS), the investor initiative said. 

“However, despite these commitments, none of the companies are aligned yet with ‘net zero’ or 1.5° C pathways,” TPI said in its analysis.

BP responded to TPI’s analysis, saying that it focuses on carbon intensity, while “We do not believe that carbon intensity alone is a reliable single measure of progress towards the Paris goals.”

BP is set to update the market in September about how exactly it plans to achieve its net-zero ambition.

Diversification into renewables is a huge strategic opportunity for the UK oil major, BP’s chief executive Bernard Looney told the Financial Times this week.   Related: The Relentless Oil Price Rally

“For a company of our experience there is enormous opportunity in that. It is the right thing to do from a societal perspective, a staff perspective, and for our shareholders. We’ve got some work to do to prove that business case to [shareholders],” Looney told FT.

While BP will work to convince shareholders that increased investments into alternative energies will drive the returns investors expect, shareholders in the biggest U.S. oil firm are pushing for climate action from ExxonMobil, which hasn’t set any net-zero emission targets.  

Exxon shareholder Legal & General Investment Management (LGIM) said this week it would vote against the re-election of the Exxon board chair at the Annual General Meeting on May 27.

“We remain concerned by the Exxon’s lack of strategic ambition around climate change,” said Meryam Omi, Head of Sustainability and Responsible Investment Strategy at LGIM.

“We are seeing many of Exxon’s peers step up, and reaffirm their sustainability ambitions even amid the current testing circumstances. The world, and Exxon’s investors, cannot afford the company to fall behind.”

After Europe’s supermajors announced long-term carbon emission targets, the ball is now in U.S. oil giants’ court to respond to increased investor demand for climate action.

By Tsvetana Paraskova for Oilprice.com

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