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Study says few energy companies have carbon reduction goals aligned with Paris Accord

22 November 2020 Kevin Adler

Announcements by scores of international fossil fuel companies this year that they are committed to reducing their carbon footprint fall far short of the reductions needed to contain global temperature increase 2°C by 2050, according to new research by the Transition Pathway Initiative (TPI).

TPI found that just seven of 59 oil and gas and coal mining companies have carbon pledges that would meet the emissions reductions of the 2015 Paris Agreement: Glencore, Anglo American, Shell, Repsol, Total, Eni and Equinor (all based in Europe).

"Moreover, those pledges are widely regarded as insufficient to avert dangerous climate change (leaving the world on track for 3.2°C of warming according to UNEP)," TPI said when releasing its report on 7 October 2020. "When judging companies' emissions pathways against the more ambitious benchmark of limiting climate change to 2°C or below, none of the 59 fossil fuel companies were found to be aligned, although three oil and gas companies are approaching a 2°C pathway (Shell, Total & Eni) but still need further measures to be assessed to align with this benchmark.

Thanks to heavy regulation of the power sector and the advancement of renewable technology, power producers are ahead of other parts of the energy industry in addressing climate change, said Simon Dietz, author of the study. "The core business model is not under threat. For oil & gas companies, the route to Paris alignment is much more of a challenge to their basic reason for being. Some companies have started grappling with this challenge, but none have met it yet," he said.

The lack of US companies on the list of those that have strong commitments is especially glaring, said TPI Co-chair Adam Matthews. "US fossil fuel giants have yet to take meaningful action to reduce their emissions, and the gap with their European peers is stark," he said.

Annual governance study

In its fourth annual report on fossil fuel companies' governance in the area of climate change, also released in October, TPI found little change from 2019. (See report, "Management Quality and Carbon Performance of Energy Companies: September 2020 Update.")

In a survey of 163 companies (up from 141 companies the prior year), the average score was a 2.7 in 2020, up from 2.6 in 2019. The scale is 0-4.0, with Level 0 being "unaware" and Level 4 representing a corporate "strategic assessment."

"We see more progress on setting emissions targets and consequently on Carbon Performance. The share of companies aligned with Below 2°C has increased from 12% to 18%. Clearly there remains a long way to go, however," TPI said.

On the positive side, TPI noted that the share of companies disclosing emissions data in 2020 for FY2019 has increased relative to 2019 disclosures of FY2018 emissions.

The ratings are based on 19 criteria, such as:

  • Acknowledgment of climate change

  • Recognition of risk and opportunity

  • Policy commitment

  • Emissions targets (short term and long term)

  • Disclosure of emissions

  • Third-party verification of emissions

  • Process to manage climate risk

  • Climate risk incorporated into executive compensation

  • Disclosure of an internal price of carbon

While only three coal mining companies ranked at Level 0, TPI noted major gaps in governance even among the 50 companies with Level 4 scores. "For example, just 9% of companies ensure consistency between their climate change policies and the positions taken by lobbying groups of which they are a member," it said.

Furthermore, noted Bill Hartnett, stewardship director, ESG Investment of Aberdeen Strategic Investments, "High management quality scores are not always linked to adequate climate ambitions."

TPI noted that it does not see an impact in the factors its measuring from the global COVID pandemic. "We received a high response rate from companies to our request for feedback, [and] we do not see any negative trends in Management Quality or Carbon Performance that are obviously attributable to Covid-19," it sa

Posted 22 November 2020 by Kevin Adler, Editor, Energy and Natural Resources Group, IHS Markit

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