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Claims that oil companies are on course to reach net zero carbon emissions are “overstated”, new research suggests, with investors urged to push for more stringent targets and standardised data disclosure.

The average European oil and gas company “would need to cut its emissions intensity by over 70% between 2018 and 2050” in order to limit global warming to 2°C this century, according to a report by Transition Pathway Initiative (TPI) published on May 12.

Backed by asset owners and managers with over US$19tn in capital, TPI assesses firms’ readiness for a low-carbon economy.

It notes commitments by Total, Shell, BP, Repsol and Eni to significantly cut carbon emissions as a welcome shift in tone, and says BP and OMV are now the only European companies not aligned with 2015’s historic Paris Agreement on fighting climate change.

“However, despite these commitments, none of the companies are aligned yet with ‘net zero’ or 1.5°C pathways,” it says. “A genuine net zero strategy would require a 100% cut in absolute emissions. Even the most ambitious new targets fall far short of this.”

TPI’s research is not aimed solely at oil companies themselves. The report says investors in the oil and gas industry have a “critical” role in pushing the industry towards net zero carbon emissions.

Trade finance institutions, for example, could consider demanding emissions targets as a condition for lending.

“Tougher sustainability criteria for loans is one way the sector can try to influence companies, though it is often possible for companies to get around these,” a TPI spokesperson tells GTR. “Divestment and exclusion policies are another way investors can impose their principles.”

Pushing fundamental change at boardroom level is likely to be more effective, however. “More sustainable change comes from investors engaging with companies to convince them of the need for change in order to protect their balance sheets and retain shareholder support,” the spokesperson adds.

The report suggests investors could determine a net zero standard for the oil and gas sector, which extends to downstream and scope three emissions – a term that refers to a company’s indirect carbon emissions, for example through travel, waste or water consumption.

“Critically, these targets must apply to all energy products sold, including those acquired from third parties,” it adds.

Initiatives such as those led by Climate Action 100+ (CA100+), a pressure group that seeks to reach agreements with the planet’s largest corporate greenhouse gas emitters, are also welcomed.

 

Signs of improvement

Despite its calls for improvement, TPI acknowledges that there has already been a rapid shift in mentality from the fossil fuels industry.

“Three years ago, no company had set targets to reduce the carbon intensity of the energy they supply,” says TPI co-chair Adam Matthews.

“Today all six oil and gas majors assessed by TPI have set such targets and we have seen significant progress in the past months, with companies engaging with the concept of net zero, adopting longer-term perspectives and setting more ambitious goals to accelerate the low-carbon transition.”

Shell and Eni are identified as having the most ambitious emissions-reduction plans.

Shell announced in April it would aim for a 65% cut in its net carbon footprint and net zero in operational emissions upstream by 2025 or sooner. TPI’s Matthews says the company has also introduced “a new concept of not selling energy to customers that are not also aligned to net zero pathways in key sectors such as aviation, shipping and freight”.

A spokesperson for Shell tells GTR the company needs to examine the details of the report but is “pleased that the TPI recognises both our ambition and that we are aligned with the emissions-reduction pledges of the Paris Agreement”. They add the company is “confident” it is aligned with the agreement’s 1.5°C global warming target.

Eni is identified as the only company to have an absolute target of an 80% reduction across all emissions by 2050, and is singled out as having “the most comprehensive strategic response”.

An Eni spokesperson says the company is pleased TPI recognises the importance of those targets, and says its board is presenting a new share-based incentive plan to shareholders on May 13 that introduces performance goals linked to cutting emissions.

Repsol says it “welcomes the added insight that the report is providing”, adding: “As technology, regulations and society evolve, we will all be able to refine and perfect processes and projects.”

Total did not respond when contacted by GTR, but announced on May 5 it was aiming to reach net zero emissions by 2050 across its global business. Though ranked as one of the industry’s better performers, BP did not respond when contacted.

An OMV spokesperson says the company has already achieved its 2025 targets ahead of schedule and is now working on new aims, adding that TPI’s assumption that its future emissions intensity will remain constant “is not factual”.

 

The standardisation challenge

A lack of standardisation around how emissions data is disclosed and how targets are set – a long-term concern for financial institutions keen to push the energy industry towards sustainable practices – remains a challenge.

Without standardisation trade transactions can be accused of greenwashing, where deals are marketed as sustainable without any independent means of verification.

“The European oil and gas companies all measure their emissions and set out their targets in slightly different ways, which makes it difficult to directly compare commitments and performance,” TPI’s report says.

“There is now a need to standardise the overall approach to disclosure to allow investors to assess and compare transition strategies on a consistent basis.”