OIL & GAS
The Oil & Gas team’s objective is to raise awareness of the risks of investing in fossil fuel assets and the knock-on impact to the climate, thereby helping catalyse the shift towards a decarbonised energy system and better climate outcomes.
This takes place via a variety of mechanisms – making financing costs for fossil fuel projects more reflective of risks, preventing oversupply of fossil fuels, preventing infrastructure lock-in, catalysing investment in alternatives and diminishing political power/lobbying activity.
The idea is that increased awareness of risks will drive financial actors to contribute via these mechanisms whether they are attempting to achieve climate goals or to better manage their exposure regardless of their climate 'base case' outcome.
In 2019, our work continued to build on our company analysis. “Breaking the Habit”, published in September 2019, analysed climate risk exposure at the company level, identifying projects globally that are inconsistent with the Paris Agreement. The study found that oil and gas companies have approved $50 billion of major projects since 2018 that undermine climate targets and risk shareholder returns. Well received in the international press, it featured in top outlets including Bloomberg New Agency, Axio, Reuters New Agency, and The Times.
In the following report, “Balancing the Budget”, we identified at an asset level which current and future oil & gas projects are economic in a 1.6˚C world for the oil majors, and which projects would take us beyond the remaining global carbon budget. According to our analysis, the world’s listed oil & gas majors must cut combined production by more than a third by 2040 to keep emissions within international climate targets and protect shareholder value. The report featured in The Guardian, AFP, the Houston Chronicle and City AM, among other national and international titles.
Our Oil & Gas research continues to be an inspiration for asset owners and asset managers, helping them frame the issue and think about how to change investment patterns. Examples of this include:
The Danish pension fund PenSam that divested from an additional 26 oil companies, based on our analysis.
The Danish MP Pension fund divested from all listed equities in Royal Dutch Shell, ExxonMobil and eight more of the world’s largest oil companies, including Chevron, Petrochina, Total, Petrobras and Equinor, for a total value of €86 million. The MP’s fund assessed the companies’ business and climate change strategies using data from Carbon Tracker.
Our analysis also had an impact on oil & gas companies in the period, incentivising them to change their climate risk disclosure practice, publicly commit to climate action, change their remuneration practice and implement more progressive R&D methodologies. Examples of this include BP and Glencore passing shareholder resolutions to encourage the disclosure of how all their future capital expenditure plans might be Paris-compliant.
Carbon Tracker has noted a definite change of heart by media and investors towards the long-term survival of fossil fuels, with more comment financial risk that the energy transition presents to existing business models. We are seeing a heightened sense of unease by financial media outlets in their coverage towards the risks of ‘growth’ business models by fossil fuel companies, particularly as emissions need to decline rapidly. This has been reflected in markets by the re-pricing of securities, underperformance of fossil fuels versus mainstream benchmarks, and the rising cost of capital for fossil fuels relative to renewables.
We continue to see a change in the tone at investor conferences and meetings. The challenge remains of continuing to make this translate into action by financial players at sufficient scale to move markets. We anticipate a growing round of more forceful engagement by shareholders towards ‘slow to move’ company management and their boards.
"MP Pension wants to aid the green transition and secure its members’ long-term investment returns. As a result, MP Pension has decided to divest from listed equities in upstreaming oil companies. The divestment is based on an assessment of individual oil companies’ long-term business models and their compatibility with the goals of the Paris-agreement. MP Pension has used Carbon Tracker data and company profiles in our analysis to evaluate the companies’ ambitions on climate change and their strategic alignment of company operations with the global climate goals and temperature limits. The data from Carbon Tracker, alongside other data sources, has been valuable in determining which companies are taking steps to transition towards a low-carbon economy and which companies that are still opposing or have limited initiatives to support the Paris-agreement."
Anders Schelde, CIO, MP Pension