Sustainable fund managers are left unimpressed by the latest commitment of the world’s biggest oil and gas firms to reduce emissions.
During COP28, the presidency of the climate summit and Saudi Arabia announced that 50 oil and gas companies had joined the Oil and Gas Decarbonization Charter to work to accelerate the decarbonization of operations and aspire to implement current best practices by 2030 to collectively reduce emission intensity.
While many of the Big Oil firms have already pledged in recent years to cut emissions from their operations – the so-called Scope 1 and Scope 2 emissions – a record-high number of national oil companies are now part of the pledge.
To date, 50 companies, accounting for more than 40% of global oil production, have signed on to the OGDC, with National Oil Companies representing over 60% of signatories - the largest-ever number of NOCs to commit to a decarbonization initiative, the COP28 presidency said.
However, ESG fund managers found the latest initiative overdue and lacking in ambition as it does not address emissions from the products oil firms sell—the so-called Scope 3 emissions. Related: Houthis Target Fuel Tanker Headed for Suez Canal
Many environmental, social, and corporate governance (ESG) investors wouldn’t include oil and gas firms in their portfolios solely due to the decarbonization pledge, as they are not convinced that this is enough to view the companies as environmentally responsible.
The recent pivot of Big Oil to energy security instead of ESG and the lack of pledges to invest more capital in renewables are also discouraging sustainable fund managers from including oil and gas firms in their portfolios.
All European majors continue to target net-zero emissions by 2050, but some of the biggest, including BP and Shell, have scaled back promises to reduce oil and gas production and have signaled they would be there to provide the world with fossil fuel energy as long as it needs it.
But ESG managers and investors who spoke to Reuters on the sidelines of COP28 in Dubai say that “business as usual” is no longer an option for Big Oil.
“The transition to a low-carbon world does not mean producing the same volume of oil and gas in a more carbon efficient manner,” Alix Chosson, lead ESG analyst at asset manager Candriam, told Reuters.
“It means shifting away from fossil fuels as the main energy source towards low-carbon energy.”
Candriam will continue to exclude major oil and gas firms from its portfolio as none of them is aligned with the asset manager’s preferred scenario to meet the Paris Agreement targets.
On the eve of COP28, Candriam’s Chosson wrote, “Let’s be clear: there will be no shift away from fossil fuels if we do not address scope 3 emissions. Furthermore, there will be no meaningful reduction of GHG emissions without shifting away from fossil fuels. This is a scientific fact.”
“So no matter what COP28 does achieve or not, the only way to keep the Paris Agreement alive, is to accelerate the reallocation of capital and financing away from fossil fuels, into clean energies. Not tomorrow, not in 2030. Now,” Chosson concluded.
Other investors are disappointed with the majors after realizing that “oil and gas companies are not going to become renewable energy companies,” Aniket Shah, Global Head of Sustainability and Transition Strategy at Jefferies, told Reuters.
According to data from the International Energy Agency (IEA), the oil and gas industry spent just 1% of their cash on low-carbon energy in 2021 and 2022.
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Climate change is the single largest motivation of investment institutions to decide to exclude companies from their portfolios, a new tracker launched in October showed.
However, in the third quarter of 2023 alone, investors pulled $2.7 billion from U.S. sustainable funds, continuing a trend of net withdrawals that started in the fourth quarter of 2022, per data from Morningstar Direct. Over the past year, investors have withdrawn a total of $14.2 billion from U.S. sustainable funds, the data showed.
By Tsvetana Paraskova for Oilprice.com
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