Investors concerned by slow climate progress in energy sector; dragged down by coal, oil & gas
Just two oil and gas majors aligned with Paris climate pledges
Only 31 of the top 109 energy companies (28%) are aligned with the emission reduction pledges made by national governments in the Paris Agreement.
Just two of these are oil & gas companies (Royal Dutch Shell and Repsol).
29 energy companies (22%) rank in the bottom two tiers for governance of climate risk – they don’t have a policy commitment on climate action and/or don’t recognise climate change as a relevant risk. Of these, 9 are electric utilities, 6 are oil & gas, and 14 are coal miners. BNP Paribas Asset Management: “The large and growing gap between government targets and company ambitions – is a major source of investment risk.”
(London, 18 September 2019). A new study of the climate performance of the energy sector from the $15 trillion investor-backed Transition Pathway Initiative(TPI) finds that “climate progress in the energy sector is inching rather than accelerating towards a low-carbon future.” The research is supported by investors including BNP Paribas Asset Management, Aberdeen Standard, Legal & General Investment Management and Robeco.
TPI assessed the carbon performance of 50 oil and gas companies and 59 electric utilities. Despite the claims of many oil and gas majors to be tackling climate change, TPI found that just two oil and gas companies have emissions ambitions in line with the Paris pledges made by national governments, and none are aligned with a pathway that would keep global warming to 2°C.
The contrast with the electric sector is stark, with 29 electric utility companies (49%) now aligned with the Paris pledges, and over 20% set to meet the most ambitious ‘below 2°C’ benchmark. (see graphic in notes to editor). EDF, E.ON, Exelon, Innogy, Ørsted and PG&E are projected to reach nearly zero carbon by 2030.
The TPI report also assessed carbon ‘Management Quality’ – i.e. corporate governance of climate risk – for 135 leading oil & gas, electric and coal mining firms. Coal is the worst performing sector on management quality. Fourteen coal companies (61%) fail on one of the most basic indicators – that of explicitly recognising climate change as a relevant risk to their business. In total 29 of 135 energy firms (22%) fall into the bottom rankings (Level 0 and 1) for management quality of which 14 are in coal, 6 oil & gas, and 9 electric utilities.
For the 50 oil and gas companies assessed on carbon Management Quality the research finds:
31 (62%) oil and gas firms do not disclose Scope 3 emissions from the use of sold products (e.g. emissions from the cars or planes that use the firm’s fuel) – including Exxon Mobil (US)and Gazprom (Russia).Scope 3 emissions are responsible for the vast majority (approximately 80%) of a company’s carbon emissions footprint.
23(46%) have not set quantitative targets to reduce emissions, including Phillips 66 (US) and Petrobras (Br).
26 (52%)have remained on the same level, 15 have moved up, and five have gone backwards. Four do not have trend data available.
On oil and gas companies’ lobbying efforts, the report found 47 (94%) do not ensure consistency between their own climate position and those of trade associations of which they are a member.
Adam Matthews, Co-Chair of the Transition Pathway Initiative and Director of Ethics & Engagement, at Church of England Pensions Board, said:
“Despite a climate emergency being declared across multiple countries, this new research shows the energy sector is inching rather than accelerating towards a low-carbon future. It is not quick enough. In particular, too many fossil fuel companies are dragging their feet both on governance and actual carbon performance.”
“This latest data is of enormous concern and the pace of change has to increase in line with the urgency of the issue. Investor engagement has to ensure companies align with a pathway that keeps global warming below 2°C. In particular, fossil fuel majors should set emissions targets that include the emissions from their sold products (scope 3). We know it can be done and there is no excuse for not doing so.”
Helena Viñes Fiestas, Global Head of Stewardship and Policy, BNP Paribas Asset Management:
“Despite an increasing number of governments having raised their emission reduction ambitions and now aiming to be carbon neutral by 2050, the majority of companies have yet to establish their 2030 emission reduction targets, let alone set a longer-term vision for their carbon emissions. We, as a major institutional investor, are concerned that transition risk – the large and growing gap between government targets and company ambitions – is a major source of investment risk.”
Emma Howard Boyd, Chair of the UK Environment Agency and its Pension Fund Investment Committee:
“On Friday, people all over the world will take part in the climate strike calling on governments to act faster on the climate emergency. That mainstream public pressure will result in governments getting tougher on emissions and investors looking to stay ahead of the curve. This analysis shows which companies are not taking their responsibilities seriously. They can begin to change that by setting targets that include emissions from their sold products.”
Euan Stirling, Global Head of Stewardship and ESG Investing, Aberdeen Standard Investments:
“When you need to change behaviours, visible leadership is very important. There is no doubt that oil and gas companies are in a difficult position in navigating the transition to a low carbon economy. That makes it all the more important that we have at least some sector constituents who are starting to respond to the climate crisis by repositioning their businesses from the top down in the same way that many power generators have. The TPI reports highlight to the companies being assessed what can be done and should inspire those who are lagging to follow the climate transition leaders.”
Carola van Lamoen, Head of Active Ownership, Robeco:
“TPI’s research shows that there is significant room for improvement in the quality of management of climate-related issues by energy companies. Moreover, only a small minority of energy companies are taking action to mitigate their emissions in line with the goals of the Paris Agreement. We believe that investors should use their voice to hold top management of investee companies accountable for incorporating climate-related issues in their corporate strategy. We will continue working together with our partners at TPI to promote the adoption of sustainable business models by the companies in our portfolios.”
Notes to editors
For more information or exclusive interviews with the TPI team please contact:
TPI’s company assessments are divided into 2 parts:
'Management Quality’ assesses companies management/governance of greenhouse gas emissions and the risks and opportunities arising from the low-carbon transition against 19 indicators. The energy sector report assessed 135 companies on Management Quality. And
‘Carbon Performance’ involves quantitative benchmarking of companies’ emissions pathways against 3 benchmark scenarios. The energy sector report assessed 109 companies on Carbon Performance. The 3 benchmark scenarios are:
Paris Pledges, consistent with emissions reductions pledged by countries as part of the Paris Agreement (i.e. NDCs). 2 Degrees, consistent with the overall aim of the Paris Agreement, albeit at the low end of the range of ambition Below 2 Degrees, consistent with a more ambitious interpretation of the Paris Agreement’s overall aim
A full methodology is available in the research report. Data for all new statistics is from March 2019-July 2019, with most companies’ trend data being assessed in relation to 2018. Data is sourced by FTSE Russell and the Grantham Research Institute at the London School of Economics and analysed by the Grantham Institute. Assessments of which firms disclose scope 3 emissions on sold products is based on FTSE Russell disclosure definitions. For Carbon Performance assessments, TPI uses the Sectoral Decarbonization approach (SDA), which was created by CDP, WWF & WRI in 2015 & is also used by the Science Based Targets Initiative. Management Quality data is sourced from FTSE Russell.
The Transition Pathway Initiative (TPI) is a global initiative led by asset owners and supported by asset managers. Aimed at investors and free to use, it assesses companies’ preparedness for the transition to a low-carbon economy, supporting efforts to address climate change. It is backed by 50 asset owners with over $15 trillion of combined assets under management or assets under advice. More information: www.transitionpathwayinitiative.org
Figure available for re-printing:
The contrast between the Carbon Performance of electricity utilities and oil and gas producers is stark: