2020: A Clear Vision for Paris Compliant Shareholder Engagement

2020: A Clear Vision for Paris Compliant Shareholder Engagement

Investors at Risk Must Demand Oil & Gas Companies Deliver 2°C Transition Plans

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The oil and gas industry and its products account for half of global carbon dioxide emissions. If humanity is to stand any chance of effectively addressing climate change, global oil and gas companies must become part of the solution.

The emissions of the oil & gas industry collectively account for approximately half of global carbon dioxide (CO2) emissions. If fossil fuels continue to be extracted at the same rate over the next 28 years, as they were between 1988 and 2017, global average temperatures would be on course to rise 4°C by the end of the century. Such an increase will have catastrophic consequences.

With the adoption of the Paris Climate Agreement and the global recognition that swift action must be taken to limit global temperature rise to significantly below 2°C, shareholder pressure has increased on oil & gas companies to address their contribution to growing climate risk.

It is within this context that we pose the following questions for consideration in this Strategy Review:

  • Is shareholder engagement on pace to move oil & gas companies to achieve Paris goals?
  • Are oil & gas company demand projections realistic and do they justify continued capital expenditures on exploration and production of more reserves?
  • What is the portfolio cost and continued risk to investors of holding oil & gas stocks?
  • Can shareholders influence oil & gas companies to adopt a Paris compliant transition plan?

 

EXECUTIVE SUMMARY

One hundred and sixty climate change shareholder resolutions were filed at 24 U.S. oil & gas companies between 2012 and 2018. These resolutions resulted in a range of successes—from appointing climate-competent board members to reducing some operational greenhouse gas emissions. Despite this movement, none of these U.S. oil & gas companies have adopted plans, or targets, to limit their full lifecycle contribution of greenhouse gas emissions. Instead, the vast majority of these companies are continuing business as usual investments to maintain or expand production. Specifically, there has been no material progress in reducing the emissions that matter most, Scope 3 product emissions, in alignment with the Paris Climate Accord. These emissions, because of their size and scale, are the relevant proxy for assessing company progress on climate change goals, as is a company’s disclosure of Paris compliant business plans to rapidly ramp down these emissions.

The fact that global greenhouse gas emissions, and oil & gas company capital expenditures on exploration and production, keep rising signals a fundamental limitation of the current shareholder engagement strategy. Shareholders must grapple head-on with the implications of an oil & gas business model that continues to invest unabated in products which, when used, run counter to science-based targets and the Paris Agreement.

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