Oil transition plans inadequate for investors: Report

Oil and gas producers' energy transition plans are "insufficient for investors to accurately gauge transition risk", according to a report released today from investor initiative Climate Action 100+ and investor research group Transition Pathway Initiative (TPI).

Several companies measured have net zero goals, but there is an "absence of disclosure on critical elements", which makes it difficult for investors to understand how companies will achieve net zero, as well as the transition risks posed. The lack of sufficient transition plans presents a "material financial risk", Climate Action 100+ said.

The report assessed 10 publicly-listed oil and gas producers — European firms BP, Eni, Repsol, Shell and TotalEnergies, and North American companies Chevron, ConocoPhillips, ExxonMobil, Occidental and Suncor. The companies scored lowest against 'alignment' metrics, measuring if they are in line with the Paris climate agreement that seeks to limit global warming to 1.5°C above the pre-industrial average.

"More disclosure is required on the central aspects of transition planning, including measures to neutralise emissions, and production forecasts", TPI found. Companies assessed failed to score on 87pc of metrics related to quantifying emissions cuts, and on 89pc of metrics related to future oil and gas production. Most North American firms assessed have stated they plan to lift output, the report noted. But "without acknowledging the impact of the transition on the core business, companies risk deploying capital that… accentuates the risk of assets becoming stranded", it said.

The report flagged a stark difference between the two regions.

"European companies provide substantially better disclosure, set more aligned targets and are investing more in climate solutions", it said. North American firms are "not planning to meaningfully diversify into low carbon energy production", while European ones are exploring a range of lower-carbon options, including biofuels, hydrogen and renewable power.

The companies assessed are also not reaching for "easy wins" on methane abatement, with just two having "convincing strategies" on this, the report found. Of the 10 companies, seven have joined reduction initiative the Oil and Gas Methane Partnership, but "most companies have not set a methane emissions reduction target with a clear and specific base and target year."

Investment is crucial for companies looking to decarbonise. A report this week from non-profit CDP and consulting firm Oliver Wyman found that more than half of corporations in high-emitting sectors said access to capital was "a key concern in decarbonisation efforts". Their report analysed data from 1,600 European companies, which reported via CDP's environmental disclosures programme.

"This implementation gap between concrete business actions and stated climate goals persists despite most businesses reporting they have a transition plan and emissions reduction targets in place", CDP said.

By Georgia Gratton