Investors lack sufficient detail on oil, gas sector transition risks – report

The energy transition plans of 10 of the world's largest publicly traded oil and gas companies lack sufficient detail to help investors accurately gauge related material financial risks, according to a new report. The results also suggest that most companies are not making progress in aligning their business strategies with the Paris Agreement on climate change.

The March 27 assessment from investor network Climate Action 100+ scored the companies using a new "net-zero standard" for the oil and gas industry that a climate-focused investor group rolled out in 2023. The companies were measured against their long- and medium-term emission reduction targets, decarbonization strategies and capital allocations, and whether they follow the guidelines of the Task Force on Climate-Related Financial Disclosures.

On average, companies satisfied only 19% of the standard's climate metrics. The network reached those conclusions while noting that its signatories now have new and better data to assess whether producers are reducing member portfolio risks by decarbonizing. However, the report cautioned that the oil and gas sector's transition plans "are still insufficiently detailed for investors to accurately assess transition risk."

North American producers Chevron Corp., ConocoPhillips, Exxon Mobil Corp., Occidental Petroleum Corp. and Suncor Energy Inc. scored well below their European peers in the review.

The assessment echoes reports from other organizations that track the industry, including a Carbon Tracker analysis published earlier in the month, but the Climate Action 100+ report provides a broader assessment of company transition plans. The assessment includes both downstream and upstream activities, for example. The standard on which it is based also has more specific metrics for disclosures.

"By showing the wide variation in the quality of companies' disclosure and diversification strategies, this analysis enables investors to see where this risk is most acute," Dan Gardiner, head of transition research at the Institutional Investors Group on Climate Change (IIGCC), said in a statement. "While a few companies have made progress, most are failing to set out even a basic transition strategy."

Climate Action 100+ comprises more than 700 asset managers, pension funds and other large investors. IIGCC is one of the investor networks within the coalition.

Initiative faces challenges

The American Petroleum Institute, the oil and gas industry's leading US trade organization, countered that oil and natural gas will still be needed to meet more than half of the world's demand for reliable energy by 2050.

"The US oil and natural gas industry is continuing to advance low-carbon technologies and to reduce greenhouse gas emissions while maintaining access to affordable, dependable energy," Aaron Padilla, the group's vice president of corporate policy, said in an emailed statement. "API supports the ambitions of the Paris Agreement, and we're committed to working with policymakers on solutions that keep all options on the table — from renewables to oil and natural gas."

Climate Action 100+ engages with companies from 15 sectors about aligning with Paris Agreement goals to limit global warming to 1.5 degrees C or "well below" 2 degrees C beyond pre-industrial levels. Those companies, all with large carbon footprints, include 40 oil and gas producers. One-fifth of the oil and gas producers are based in the US.

The coalition has come under fire from Republican lawmakers allied with US oil and gas producers, prompting several large investors to quit the initiative in recent months. The combined assets under management by signatories to Climate Action 100+ dropped as firms such as JPMorgan Chase & Co. and State Street Corp. departed. BlackRock Inc., the world's largest asset manager, also dramatically reduced its presence.

At the same time, 60 new signatories with about $3 trillion in assets under management have joined, "highlighting the strong ongoing demand for investor-led climate action," a coalition spokesperson said in an email.