Fossil fuel giants still aiming wide

Despite a series of headline-grabbing climate commitments from European oil and gas companies this year, no major fossil fuel company has set emissions targets consistent with limiting global warming to 2°C, according to the $22 trillion-backed Transition Pathway Initiative (TPI).

TPI’s analysis of 59 of the world’s largest listed oil, gas, and coal mining companies found that none are on track to align their emissions with a 2°C pathway by 2050. Although Shell, Total, and Eni are approaching alignment, additional measures are required to meet this benchmark.

Only seven companies (12%)—Glencore, Anglo American, Shell, Repsol, Total, Eni, and Equinor —have emissions targets in line with the national pledges made under the Paris Agreement. Among them, five oil and gas companies and two coal companies are on track to align with the emissions pledges made by countries as part of the Paris Agreement. However, these ‘Paris Pledges’ still leave the world on track for 3.2°C of warming according to the UN Environment Programme (UNEP).

In contrast, the electric utilities sector demonstrates stronger progress. Of 66 utilities assessed, 39 (59%) are aligned with the Paris pledges, while 22 (33%) meet the more ambitious ‘below 2°C’ benchmark. However, these pledges are widely regarded as insufficient to avert dangerous climate change, (leaving the world on track for 3.2°C of warming according to UNEP).

Climate Governance Shows Little Improvement
TPI also evaluated companies’ Management Quality (MQ)—a measure of climate governance on a scale from Level 0 (Unaware) to Level 4 (Strategic Assessment). The average MQ score for energy companies was 2.7, representing only a marginal improvement of 0.1 points over the previous year, indicating limited progress in climate risk management and strategic oversight.

The research showed that 94% of energy companies now have a policy commitment to act on climate change, but fewer take the more advanced Management quality steps. For example, just 9% of companies ensure consistency between their climate change policies and the positions taken by lobbying groups of which they are a member. Twenty companies have improved their score since last year. CMS Energy and Dominion Energy have moved up by having their operational GHG emissions verified for the first time. However, 13 companies have moved down a level. For example, Eneos, Neste and Suncor Energy moved down as a result of no longer disclosing their involvement in trade associations that are active in climate lobbying.

"Investors have witnessed a flurry of significant climate announcements by fossil fuel majors this year, so it is striking this independent research still shows those commitments do not yet align with limiting climate change to 2°C. There has been some movement, with seven European companies now aligned with the Paris pledges, and Shell, Total and Eni getting close to meeting the 2°C benchmark. But US fossil fuel giants have yet to take meaningful action to reduce their emissions and the gap with their European peers is stark". Adam Matthews, TPI Co-Chair.

"The electricity sector is heavily regulated with regards to its emissions in some regions such as the EU and this likely explains some of the results we see. More broadly, the technologies needed for decarbonising electricity production are already there and often competitive on cost with fossil fuels, so the core business model is not under threat. For oil and gas companies, the route to Paris alignment is much more of a challenge to their basic reason for being. Some companies have started grappling with this challenge, but none have met it yet". Professor Simon Dietz explaining the divergence between sectors.

"TPI’s latest report on global energy companies shows some encouraging signs of progress, particularly with more electric utilities and European oil and gas companies making ‘net zero’ commitments to align their strategies with the goals of the Paris Agreement. The key challenge is to turn these net zero pledges into actions and reflect ambitions in investment plans. The report shows that the great majority of companies in these critical transition sectors are far from being ‘Paris aligned’ and that the coal sector is particularly challenged. High management quality scores are not always linked to adequate climate ambitions. This TPI research provides us with an important investment and stewardship tool to develop strategies to address these risks on behalf of our clients". Bill Hartnett, Stewardship Director, ESG Investment, Aberdeen Standard Investments.

"The decarbonisation of the energy power is critical in achieving the ambition of limiting global warming to well-below 2°C. We are encouraged by TPI’s finding that a growing number of companies are aligned with a low carbon scenario. Over the past year we have seen momentum particularly in the oil and gas industry, partly driven by investor engagement. Still, with only 37% of energy companies aligned with at least the Paris Pledges, and 18% aligned with the most ambitious Below 2°C benchmark in 2050, there clearly remains a long way to go. Robeco is committed to continuing our engagement efforts to drive corporate climate action". Carola van Lamoen, Head of Robeco’s Sustainable Investing Center of Expertise.