Big oil falling short on climate change investment: report

Jordan Smith
By Jordan Smith December 19th, 2018
For business

The world’s largest oil companies are failing to invest sufficiently in climate change, according to a new report. The organization CDP found that just 1.3 percent of total capital expenditure by the top 24 oil and gas companies in 2018 was spent on renewable energy projects.

CDP’s research carries considerable weight, given that the organization partners with global investors who control a combined $87 trillion in capital. With the oil and gas industry accounting for some 50 percent of all carbon emissions, the report also raises important issues for policymakers and others concerned about climate change.

Researchers for CDP found that European oil majors, including Total, Shell, and BP, spend significantly more on climate change initiatives than their American counterparts. Since 2010, for example, France’s Total has spent 4.3 percent of its budget on low carbon energies. European companies control 70 percent of the sector’s renewable resources and have initiated 90 percent of ongoing projects in this area.

Although the overall spending figure for low carbon projects has increased from the 0.68 percent of spending that went to clean energy between 2010 and 2016, critics say oil and gas firms are still falling short and must use their financial muscle to support the transition to renewable energy. According to ShareAction’s Jeanne Martin, oil companies spend much more on blocking climate change initiatives than in renewables. “Investors need to step up their engagement and tell fossil fuel companies to align their business models with the goals of the Paris Agreement,” adds Martin.

Investors criticize transparency

The CDP report is the latest in a series of criticisms directed at the oil and gas sector by investors. Pressure on these companies has been building since late 2015, when the Paris Agreement on climate change was determined by the world’s governments. Among other things, the deal commits states to prevent an average increase in global temperatures by more than 2 percent.

In May 2018, 60 key investors published an open letter to the major oil companies in the Financial Times urging them to do more to prevent and counteract climate change. “[W]e strongly encourage all companies in this sector to clarify how they see their future in a low-carbon world,” wrote the investors. “This should involve making concrete commitments to substantially reduce carbon emissions, assessing the impact of emissions from the use of their products and explaining how the investments they make are compatible with a pathway towards the Paris goal.”

A few days later, shareholders at Shell’s AGM rejected a proposal that would have required the company to set a specific carbon reduction target. Advocates of the proposal argued that the company’s commitment to cut carbon emissions by half by 2050 was insufficient. The company has since agreed to announce short-term carbon reduction goals, which will be tied to executive pay.

Oil companies defend climate change record

The world’s major oil companies argue they’re already taking climate change seriously. The Oil and Gas Climate Initiative (OGCI), a coalition of oil firms formed in the wake of the Paris climate talks, has committed to reducing methane emissions by one-fifth by 2025. Methane is one of the most potent greenhouse gases.

OGCI was strengthened earlier this year when several US companies, including Exxon Mobil and Chevron, joined the group. Exxon has committed to reducing carbon emissions by 15 percent by 2020, and the company also intends to invest more in energy efficiency measures. While details on these measures haven’t been made public, Exxon Mobil CEO Darren Woods says, “We have a longstanding commitment to improve efficiency and mitigate greenhouse gas emissions.”

In Chevron’s second climate report, released in March this year, the company argued that its business operations are resilient to climate change. The report pointed to the company’s efforts to cut back on flaring, the process whereby energy companies burn off excess gas. Additionally, the report detailed Chevron’s commitment to invest in energy efficiency schemes. “We know that climate change is a growing area of interest for our investors and other stakeholders. We’re committed to addressing the risks of climate change while delivering the energy that benefits societies and economies,” explains Dr. Ronald Sugar, Chevron’s lead independent director.

Despite such commitments, some investors remain unconvinced. According to Sarasin & Partners, a London-based asset management firm, oil companies are overestimating the value of their investment portfolios because their predictions for future oil prices are too optimistic. While the International Energy Agency assumes that reduced demand for oil will see its average price drop to $60 per barrel by 2060, Sarasin pointed out that eight leading oil companies are calculating their asset worth based on the assumption that oil prices in 2050 will be somewhere in the region of $127-$140.

Jordan Smith is a freelance journalist and translator covering issues related to energy, the environment, and politics. His work has appeared on the independent news site Opposing Views, and at the Canadian Labour Institute.