The oil and gas industry is failing to align its activities with the Paris Agreement, placing financial institution backers’ capital at risk, according to a report by independent think tank Carbon Tracker. 

The report, published on March 20, scores the world’s 25 largest listed oil and gas companies on a range of metrics, including their carbon emissions targets, plans for future production and investment options. 

The highest-ranked company is BP, with an overall grade of ‘D’. Carbon Tracker says the company’s plans are not aligned with the Paris Agreement commitment to limit global warming to 1.5°C, but that they are “more progressive than most”. 

Worst-ranked is Texas-headquartered ConocoPhillips, which scores an ‘H’ rating. The report says the company plans significant investment in new production resulting in a substantial increase in hydrocarbon output over the next eight years. 

BP declined to comment when contacted, and ConocoPhillips had not responded to a request for comment as of press time. 

Carbon Tracker warns that failing to align with a low-carbon future will make energy company portfolios more risky, putting them at odds with investors and threatening their longer-term commercial prospects. 

“This is a critical juncture for fossil fuel companies: investment decisions made in the near-term could have drastic implications for the financial health of the company over the next decades,” the report says. 

It points to developments including lower-cost renewable power generation and the shift to electric vehicles as triggers for an “irreversible decline in demand” for oil and gas. 

“Lower future commodity demand naturally implies lower future commodity prices,” the report says. 

“Carbon Tracker has long argued that prices therefore could fall below the level which some individual oil and gas investments require to generate an economic return. This is particularly the case for new projects, which could produce well into the 2030s and beyond, as commodity price risk accelerates.” 

At the same time, it says investors will increasingly insist capital is deployed sustainably, and will seek to reduce their exposure to energy transition-related risks. 

“Banks and other financial institutions are operating under alignment mandates set for their lending (or other) portfolios, particularly those with large retail arms and who are the subject of heightening societal pressure to combat climate change,” Carbon Tracker says. 

An International Energy Agency paper published last year predicted demand for oil and gas would peak before 2030. It is now three years since the agency called for an immediate halt to all new fossil fuel projects in order to have any chance of keeping warming below 1.5°C. 

However, that view is not shared by all in the industry. Saudi Aramco chief executive Amin Nasser told the CERAWeek energy conference in Texas this week he believes consumption could continue growing until as late as 2045. 

“We should abandon the fantasy of phasing out oil and gas and instead invest in them adequately, reflecting realistic demand assumptions,” he told attendees on March 18. 

Saudi Aramco was given a ‘G’ rating by the Carbon Tracker report, the second-worst score awarded. The company did not immediately respond when contacted. 

The report follows updated guidelines issued by the UN-convened Net-Zero Banking Alliance (NZBA), which includes 143 banks managing nearly US$75tn in capital among its members. 

The latest edition expands the scope of climate targets to banks’ capital market activities, including arranging and underwriting services, while reiterating the pledge to reach net-zero emissions by 2050 or sooner. 

Campaign group Reclaim Finance says that expansion closes “a large loophole” in the previous guidelines, noting that roughly half of bank finance to the fossil fuel sector comes from their capital markets activities. 

However, the organisation says the NZBA “has taken a step back by allowing these targets to be blended into financed emissions targets”, rather than keeping “financed” and “facilitated” emissions separate. 

Disclosing both as a single figure is problematic as banks attach different risk weightings to the two metrics, Reclaim Finance says.