2030 Finance | November 12, 2018

European oil and gas majors hedge climate risks with low-carbon investments

David Bank
ImpactAlpha Editor

David Bank

Oil companies can choose to lead the low-carbon transition, or to slow it. Put another way, some oil companies look to be more resilient than others to the risks of the coming climate disruption.

“Beyond the Cycle,” a new report from Carbon Disclosure Project, shows that Europe’s oil companies are better prepared than their North American counterparts across transition and physical risks, transition opportunities and climate governance.

Investors are increasingly pressing oil companies to account for their climate risk under the recommendations from the Task Force on Climate-related Financial Disclosures. Actual investments to hedge such risks remains minimal, with the sector as a whole investing only 1.3% of its 2018 capital expenditure in low-carbon approaches.

The CDP’s report ranks two dozen oil companies, representing about one-third of global production, on their readiness for the low-carbon transition.

  • European companies are further ahead. Norway’s Equinor is the best-positioned, the report found, followed by France’s Total, Shell and Eni of Italy. Equinor, for example, is seeking to rebrand itself as a broad energy company and expects to invest more than 15% of its capital expenditure in new energy solutions by 2030, up from about 7% now.
  • Major European oil companies account for 70% of the industry’s current renewable energy capacity, and nearly all the projects under development.
  • The laggards in CDP’s ranking: China’s CNOOC, Russia’s Rosneft and Houston-based Marathon Oil.

“Low-carbon technologies and regulatory change is disrupting the established order of the energy industry,”  said CDP’s Luke Fletcher. Companies are now facing increasing scrutiny from investors to look beyond the current cycle and deliver value in the long-term.”