A powerful investor action group running £5 trillion in assets ($6.9 trillion) has outlined the key questions shareholders should be asking the world’s biggest oil and gas majors to assess how they are performing against international government commitments in 2015 to a 2 degrees or lower global CO2 emissions target at the Paris COP21 summit and examine how they are managing the risks and opportunities of the transition to a low-carbon economy. The investors say that most oil and gas companies do not disclose enough data to enable investors to carry out necessary financial analysis. As a result, they say they cannot research them properly to decide whether to shift capital from browner to greener companies or engage with them on their C02 emissions levels. The data requests will likely set the tone for investor votes at oil and gas major annual shareholder meetings this year and in company-investor engagement given that many of the investors involved are the same who secured >98% votes on data disclosure at the BP/Shell AGMs in 2015 and >62% at Exxon in 2016. Related shareholder efforts include the Climate Action 100+, a five-year initiative led by 256 investors running USD$28 trillion to engage with the world’s largest corporate greenhouse gas emitters to improve governance on climate change, curb emissions and strengthen climate-related financial disclosures.
The information requests are proposed in a report by the Transition Pathway Initiative (TPI), a £5 trillion global, asset owner-led initiative that researches what the transition to a low-carbon economy looks like for companies in sectors with a high impact on climate change, such as coal mining, electricity, oil and gas, and steel.
The report gives a clear example of financial analysis using three oil majors where relevant data is available, at Shell, Total and Petrobras. It says all three majors are on a business trajectory that would bust the 2 degrees warming target of the COP21 Paris agreement. But it points out that Shell and Total could align with the Paris agreement under stated ambitions to diversify and reduce their carbon intensity of energy supply. TPI says it looked at recent disclosures from BP, Chevron and ExxonMobil for the assessment but could not include them as they do not appear to quantify their future emissions ambitions.
The TPI says that because oil and gas producers are engaged in primary energy supply the appropriate measure of activity for the sector is energy production and the appropriate measure of carbon performance is the lifecycle carbon intensity of that primary energy supply based on scope 1, 2 and 3 emissions.TPI says its carbon performance assessment is based on the Sectoral Decarbonization Approach, which translates greenhouse gas emissions targets made at the international level (e.g. under the Paris Agreement to the UN Framework Convention on Climate Change) into sector appropriate benchmarks. As a result, TPI says the majors should disclose the following information to investors, updated on an annual basis:
- Total primary energy production (in MJ) for the current/most recent reporting year.
- Total primary energy production (in MJ) by fuel type for the current/most recent reporting year.
- Lifecycle carbon footprint (in carbon dioxide equivalent) for the current/most recent reporting year. This should include direct and indirect (Scope 1 and 2) emissions, the emissions associated with combusting the various fuels that it produces (i.e.Scope 3 emissions from use of sold products), and the conversion factors that are being used to calculate these emissions. It should also include other indirect or Scope 3 emissions. If the company is offsetting any of its emissions, these offsets should be reported separately.
Future (ideally to at least 2030 or 2035):
- Expected total primary energy production (in MJ) for future years.
- Expected total primary energy production (in MJ) by fuel type for future years.
- Ambitions or objectives to reduce the company’s total carbon footprint (in carbon dioxide equivalent) in future years (where these years are clearly specified). These ambitions should include the direct and indirect (Scope 1 and 2) emissions associated with a company’s operations, the emissions associated with combusting the various fuels that it produces (Scope 3 emissions from use of sold products), and the conversion factors that are being used to calculate these emissions. It should also include other indirect or Scope 3 emissions.