Oil and Gas Industry Climate Action: lessons learned from 2023’s AGM season
An incisive report from Accela Research reflects on 2023's AGM season. What did oil and gas industry climate action look like last year?
As we prepare for the 2024 Annual General Meeting (AGM) season, this article takes a reflective look back at lessons learned from 2023, honing in on what we know about oil and gas industry climate change action plans and the progress of oil major’s climate transition plans.
At the close of the 2023 AGM season, climate-focused financial analysts, Accela Research, released an incisive report on how oil and gas are approaching their low-carbon transitions. The report was commissioned by Dutch investment firms including PGGM, Achmea Investment Management, Pensioenfonds Rail & Openbaar Vervoer, MN, and APG Asset Management. The brief? To deliver a comprehensive review of the climate transition plans of five European oil and gas majors: BP, Shell, Eni, TotalEnergies, and Equinor.
The assessment sought to understand how these companies compare in terms of low-carbon transition strategies for a 1.5°C-aligned future. The report delves into their climate transition plans, emissions reduction targets, capital allocation strategies, and low-carbon initiatives. By examining the progress made by these companies in 2023, we now have valuable insights into how oil and gas industry climate change action is unfolding. The resulting report provides detailed insights into emissions reduction targets, capital allocation strategies, and low-carbon initiatives.
We return to some key findings of the report as we approach 2024’s AGM season:
Capital Expenditure and Emissions Reductions
One of the key findings of the analysis is the concentration of current capital expenditure in upstream production, with an average of $9 billion among the majors, compared to only $3 billion allocated to low-carbon portfolios. This discrepancy highlights the need for companies to reduce their reliance on traditional hydrocarbon investments and allocate more resources to low-carbon alternatives. While companies have set targets for low-carbon production in areas such as bioenergy, hydrogen, and carbon capture, there is a lack of evidence to suggest that they are actively incubating and developing new capabilities for a low-carbon economy.
The Balance Between Oil and Gas and Low-Carbon Alternatives
Despite setting high growth targets for low-carbon energy sources, the majority of these companies’ energy portfolios will remain heavily reliant on oil and gas production throughout this decade. By FY30, it is estimated that 70-90% of their portfolios will still be comprised of oil and gas production, with only 10-30% allocated to low-carbon alternatives. To align with a 1.5°C future, companies must demonstrate a significant shift towards low-carbon businesses, with approximately 30% of their earnings derived from low-carbon sources. Merely maintaining the resilience of hydrocarbons through defensive strategies will not create long-term value for shareholders or contribute to the goal of limiting global warming, thus proving an ineffective mode of oil and gas industry climate change action.
Recommendations for Alignment with a 1.5°C Future
Based on the comparative analysis of the companies’ performance and targets, several recommendations can be made to guide European majors towards a more sustainable and low-carbon future as we approach the 2024 AGM season:
BP
- Enhance renewable generation targets and increase ambition for renewable energy production.
- Strengthen scope 1 and 2 emissions reduction targets and include traded products in absolute targets.
- Provide a clear strategy for achieving the FY30 net carbon intensity target.
- Quantify the emissions impact of near-field exploration, asset run-off, and divestments.
Shell
- Commit to reducing oil and gas production and establish a scope 3 reduction target, aligned with the 1.5°C goal.
- Quantify and confirm production targets for low-carbon fuels, such as hydrogen and renewable energy.
- Articulate the value generation from low-carbon fuels by providing internal hurdle rates for investments.
- Provide capital expenditure and operational expenditure guidance for low-carbon solutions.
Eni
- Commit to reducing oil and gas production and establish a scope 3 reduction target, aligned with the 1.5°C goal.
- Improve capital allocation and production guidance for low-carbon alternatives to meet ambitious emission reduction targets.
- Enhance disclosures, investment theses, and targets for low-carbon fuels.
TotalEnergies
- Improve performance on emission reduction, particularly in scope 1 and 2 emissions.
- Commit to reducing oil and gas production and establish a scope 3 reduction target, aligned with the 1.5°C goal.
- Enhance accounting methodologies for emissions, including the sale of third-party products.
- Reconsider accounting approaches for estimating avoided emissions from LNG sales.
Equinor
- Increase renewable generation ambition and strengthen connections to hydrogen production to achieve the FY30 net carbon intensity target.
- Commit to reducing oil and gas production and establish a scope 3 reduction target, aligned with the 1.5°C goal.
- Improve emissions methodologies to include the sale of third-party products.
The analysis of the 2023 AGMs of major European oil and gas companies reveals both progress and areas for improvement in oil and gas industry climate change action. There is a particular need for stronger climate transition plans. While these companies have set ambitious emissions reduction targets, greater alignment between low-carbon strategies and business strategies is necessary to drive a meaningful reduction in emissions. By adopting the recommendations outlined in Accela Research’s report, these companies can enhance their efforts to transition to a low-carbon future, mitigate climate change risks, and create long-term value for shareholders.