March 2, 2023

Matter analysis of oil and gas majors shows that the largest emitters are among the least committed to the energy transition

In response to BP's emissions reduction u-turn, we examine the gulf between Big Oil's communications and actions when it comes to driving the energy transition.

Key points: 

  1. The highest emitting industries have the least ambitious net zero commitments 
  2. Both the revenue and capital expenditure of the five oil and gas ‘supermajors’ is over 95% misaligned with SDG 7 - Clean and Affordable Energy 
  3. According to InfluenceMap, the supermajors are spending around $750 million a year on climate-related communication activities.
  4. Investor efforts are currently failing to hold the highest emitting companies accountable for their actions. 
  5. Oil majors will not voluntarily drive the climate transition. A combination of action from investors, civil society, regulators and the media is necessary to trigger behaviour change of these companies

British Petroleum recently revealed that, in the light of an unprecedented $28 billion profit, that it plans to cut its medium-term Scope 3 emissions reduction goals for oil and gas production from 25%-40% to 20-30%. The decision was prompted by BP’s decision to increase investment in oil and gas projects by $1 billion per year up to 2030. 

The move has prompted widespread criticism from climate activists and beyond, as it indicates that those with the biggest role to play in ensuring the climate transition, are in fact pushing in the opposite direction. Previously, BP was hailed in 2020 for promising to slash oil and gas production by 40% and boost low-carbon energy spending to $5 billion a year. The recent announcement marks a concerning u-turn. Writing on LinkedIn, Neville White, Head of RI policy and research EdenTree Investment Management, said, “BPs fairly lamentable scaling back of its climate ambitions despite all the ‘greenwash’ seems conclusive - climate change can wait given the new oil-rush”.

The news is also concerning for ESG funds invested in BP on account of their formerly industry-leading net zero commitments. According to Morningstar data, 122 open-ended funds in Europe with a stated sustainable investment objective hold BP shares worth approximately €929.3 million as of 14th February 2023. Many of these investors, as well as the high-profile ClimateAction 100+ investor coalition claim to have been blindsided by these announcements, being kept in the dark up until the announcement went live in the press.

BP is not alone in reporting record profits, with all five of the oil and gas supermajors, Total, Shell, Exxon and Chevron all reporting historically high earnings in 2022 following Russia’s invasion of Ukraine.

In this piece, we use Matter’s sustainability insights to examine exactly how the five supermajors are performing when it comes to the climate transition, examining emissions, revenue, capex, commitments and more, as well as examining how this relates to their own communication of their transition efforts. 

Commitments are lagging behind 

In response to BP’s commitment rollback, we examined the proportions of select industries (measured in market value) that have set Net Zero Targets, and compared this to each industry’s average emissions intensity.

The conclusion is clear: Net Zero Commitments are highest in industries with typically low emissions. High emitting sectors, where ambitious Science-Based-Targets are needed most, are lagging far behind on committing to decarbonization.

For example, more than 40% of the technology sector (measured in market value) have set science based targets, but they only emit 2 tonnes of CO2e per mEUR in enterprise value. Meanwhile, companies in the Process Industry (e.g. bulk manufacturers) on average emit

116 times more CO2, though only 8% of this sector has committed to Net Zero.

If ambitious investors want to get real about combating climate change they need to move beyond easy wins and towards holding the highest emitters accountable to a Net Zero future, and this – as our analysis shows – will be a long battle.

Profit remains king 

The mismatch between commitments and emissions, especially when it comes to oil majors, is simple to explain. Employing ambitious short- and medium-term science-based targets to which they can be held accountable risks jeopardising their flexibility in pursuing the most profitable revenue streams, which, exacerbated by Russia’s invasion of Ukraine, continue to be fossil fuels. Profit, ultimately, remains king, whether it is aligned with 2C temperature scenarios or not. Analysis using Matter’s ‘SDG Fundamentals’ revenue analysis tool indicates that, currently, the vast majority of the oil majors revenue is actively contradictory to achieving a green transition.  The revenue of the five supermajors reveals an average 98.8% misalignment with SDG 7, Affordable and Clean Energy.

The devil’s in the Capex 

Today’s revenue is only one part of the puzzle, however. Achieving the green transition requires a demonstration that the direction of travel is a positive one, and that efforts are being made to ensure that the future of these businesses is aligned with and invested in the green transition. A key metric for this is a company’s capital expenditure (Capex), which indicates which business areas a company is investing in for the future. Analysis undertaken using our SDG Capex alignment data shows that an average of 95.29% of the supermajors Capex is misaligned with SDG 7 - Clean and Affordable Energy. 

Of this, an average 60.7% is invested in Fossil Fuel exploration, extraction, distribution and transportation. This indicates that not only are these supermajors currently profiting off their misaligned operations, but are actively investing in further expansion of their fossil fuels activities, when it is clear that, if we are to meet the temperature scenarios outlined by the Paris agreement, fossil fuels must stay in the ground.

It is increasingly accepted that climate change and natural capital are two sides of the same coin when it comes to ensuring a sustainable future. The Capex of the supermajors is also, largely misaligned with SDG 15 - Life on Land, indicating that they are investing in areas which are actively harmful to nature and biodiversity.

Beware the greenwash 

Like much research before this, the above analysis shows that both the present and the planned activity of these supermajors is actively at odds with the future sustainability of the planet. This stands in direct contradiction, however, to the communication efforts of the oil companies.

A recent report by InfluenceMap compares and contrasts the public communications, business operations, and policy engagement of BP, Shell, Chevron, ExxonMobil and TotalEnergies. The report finds that the five supermajors are spending “hundreds of millions of dollars each year on a systematic strategy to portray themselves as positive and proactive on the climate change emergency”.

The research estimates that companies are spending around $750 million each year on climate-related communication activities - considerably more than is invested in SDG 7-aligned activities annually, according to Matter’s analysis. 

According to the report, across 3,421 items of public communication from the supermajors in 2021, 60% contained at least one green claim, compared to only 23% containing claims promoting oil and gas. InfluenceMap explains that claims highlighting involvement with or support of efforts to transition the energy mix were the most popular type of green claim. 

As our analysis shows, these claims do not represent reality. Accurate and granular data, along with the analysis being done by organisations like InfluenceMap, is essential in spotting the discrepancies between the vision of these companies that is self-promoted, and reality. 

Pressure is growing on supermajors, but results are lacking

BP evidently deemed their emissions reduction rollback a reasonable risk when weighed against the potential profit. There are, however, several levers by which pressure is being applied, and can be increased, on the oil companies.

The first of these is media coverage, which has the power to raise awareness and inform sentiment surrounding companies, posing a reputational risk for companies. Matter’s solution, ‘SDG Signals’, uses AI to track sentiment in global news media, with the below figure showing the number of global news articles which refer to BP negatively in relation to SDG 7 after the news of the commitment rollback. 

News such as this may historically have either floated under the radar or featured only in specific corners of the media. Our data shows that BP’s emissions rollback was covered in approximately 300 articles in global news media on the day of the announcement, across mainstream media publications. The corporate response to the climate crisis is headline news, and BP cannot hide from the reputational backlash caused by their emissions rollback.

Despite the widespread coverage, however, SDG Signals also shows a sharp drop off in the days following the announcement. For news to solidify into significant, material reputational risk, actions like this need to stay in the news cycle for longer.

Media alone, however, will not be enough to tip the scale on big oil’s response to climate change. Another tool is investor pressure. As the gatekeepers of capital, investors have powerful leverage over oil and gas majors. One initiative which harboured hope is the Climate Action 100+, a coalition of investors, worth approximately $70 trillion, whose stated aim is to systematically target and engage with important publicly traded emitters across the world. Despite some high-profile victories, including the election of three climate conscious directors to the board at Exxon, on the whole the alliance struggled to put enough pressure on the largest emitters to meaningfully move the needle. 

On the contrary, a Majority Action report argues that ‘the efforts and effectiveness of this initiative and its leading investors to hold the boards of high emitting companies accountable are being systematically undermined by the proxy voting behaviour and reporting of the 75 largest investor-signatories of the Climate Action 100+ coalition’. It highlights the four of the coalition's six “flagged” shareholder resolutions which failed would have succeeded were it not for votes against the resolutions from Climate Action 100+ investors. According to the report, these votes ‘undermined necessary scenario planning, independent governance, and disclosure efforts at Chevron, Dominion Energy, Duke Energy, and Caterpillar, all companies with demonstrated track records of underperformance against the Climate Action 100+ benchmarks.’ 

Investors are currently not living up to their role in holding these companies accountable. There are indications that this is changing, however. For instance, the world’s largest investor Norges Bank recently issued a statement that it will vote against company directors who do not deliver on actions to combat climate change, such as setting Net Zero Targets and Commitments. As our above analysis shows, more action like this is sorely needed. 

Encouragingly, activists and civil society continue to play an important role in holding these companies to account, with climate activists poring over the disclosures of energy firms with a fine-tooth comb, and organisations like ClientEarth taking Shell’s Board of Directors to court.

Finally, regulation needs to catch up to realities of what achieving a Paris-aligned future actually takes, both in the immediate with windfall taxes, and effective regulation on long-term emissions. 

Moving forward 

The  hope that the supermajors will voluntarily drive the green transition when higher profit margins lie elsewhere, has been shattered. The revenue, capex and environmental commitments of the largest emitters is fundamentally misaligned with the achievement of the climate transition.  

With AGM season just around the corner for the oil giants, it is the responsibility of investors, media, civil society and legislators to effectively use the levers at their disposal to force the hand of these supermajors to make the changes necessary and ensure a sustainable future for the planet.


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