With climate goals looming, gap grows between fossil fuel leaders and laggards

ImpactAlpha Editor

Amy Cortese

ImpactAlpha, March 25 – European oil and gas majors are leaving their North American counterparts behind. Total, Galp Energia, Equinor, BP and Royal Dutch Shell are best prepared for the shift to a world of net-zero emissions, according to a new analysis of 39 global oil & gas companies. Lagging: U.S. producers Chevron and Exxon Mobil. Bottom of the pack: Saudi Aramco, PetroChina and Lukoil. 

The top five scorers account for half of renewable energy assets among the 39 firms.

The climate transition scores blend analysis by Bloomberg Intelligence on current and projected carbon emissions, and by BloombergNEF on business models to assess overall transition readiness. One indicator of better preparedness is climate risk disclosures. Just 12 of the 39 companies have established net-zero targets for operational emissions, and five include Scope 3 emissions in their net-zero pledges.

The analysis comes with a caveat: the scores are relative. Most oil & gas companies are still spending heavily on fossil fuel production and expansion, despite a need to cut emissions by half this decade to avoid the most catastrophic effects of global warming. 

In that, they are aided by banks, which continue to finance fossil fuel expansion despite pledges to green their portfolios. Fossil fuel financing fell an average 9% in 2020, as the pandemic cratered demand, according to an annual ranking of bank financing led by the Rainforest Action Network. Yet financing levels were still higher than in 2016, when global leaders agreed to reduce carbon emissions by, ideally, 1.5% by midcentury. 

Fueled by cheap debt, the six months of 2020 saw more fossil fuel funding than any half year since the Paris Agreement before plummeting, notes the report, Banking on Climate Chaos. 

Mixed record

U.S.-based banks, like their oil and gas peers, are laggards when it comes to addressing the climate crisis. JP Morgan, Citi, and Bank of America top the list of fossil fuel funders in 2020, as they have in prior years.

JP Morgan, the world’s largest bank, cut it fossil fuel funding by 20% in 2020, to $51 billion, but still remains the largest funder of the sector. The bank increased its funding to the biggest fossil fuel production expanders to $31 billion in 2020, from $28 billion the year before. It tripled financing for Exxon, a major expander, to $7.5 billion.  

Altogether, the top 60 banks have poured $3.8 trillion into fossil fuels since 2016. 

That stands in stark contrast to banks’ climate pledges. Starting with Morgan Stanley last September, all six major U.S. banks have now pledged to zero out emissions across their operations and portfolios by 2050 or sooner.

“What matters most is what they’re doing,” said Ben Cushing of the Sierra Club, one of several environmental groups that contributed to the Banking on Climate Chaos report. “Major banks around the world, led by U.S. banks in particular, are fueling climate chaos by dumping trillions of dollars into the fossil fuels that are causing the crisis.” 

The banks, he added, “don’t deserve a pat on the back if their 2050 pledges are not paired with meaningful 2021 actions to cut fossil financing.”

Some oil and gas companies are cutting back and investing in low-carbon alternatives. Equinor aims to have carbon neutral operations by 2030, and net-zero Scope 1, 2 and 3 emissions by 2050, notes Bloomberg, and BP and Shell are “all-in on transition strategies.”

Shell leads oil & gas companies in battery storage and EV charging investment (with BP a close second in the latter). Among other investments, BP will increase investment in offshore wind, where it believes its oil rig experience gives it an edge, by tenfold over the next decade, the company’s Bernard Looney said at a Ceres 2021 conference this week. “The transition,” he said, “is an opportunity for us to take on the next chapter in our company’s history.”