No oil and gas companies have plans to phase out fossil fuels – benchmark report

With the EU recently agreeing to reduce the region’s emissions by at least 55 percent by 2030, the phase-out of oil and gas will be key to reaching this goal, and assessments show the pace of change must be sped up significantly.

Little progress

The Oil and Gas Benchmark developed using the Assessing low-Carbon Transition (ACT) methodology – a publicly funded initiative founded by CDP and Ademe hosted by the World Benchmarking Alliance that provides credibility to companies’ climate transition plans by using forward-looking, holistic, and operational approaches to corporate climate accountability – assesses and ranks the world’s most influential oil and gas companies, including TotalEnergies, Repsol, Shell and bp, on their low-carbon transition and social impact.

This benchmark reinforces something many have called for ahead of COP28: the need for the oil and gas sector to be held to account if we are to limit warming to 1.5 degrees. If this sector does not set targets, and achieve them, we will not be able to avert the worst impacts of climate change and reach a net-zero, nature-positive society, said Laurent Babikian, Global Director of Data Products at CDP.

But the benchmark finds little advance – and alarmingly even some decline – in oil and gas companies’ progress on limiting global warming to 1.5 degrees.

The research demonstrates that even though the oil and gas sector has a wealth of resources and tools available to decarbonize, it is failing to use them.

Only 12 percent of companies that assessed Scope 1 and 2 emissions have decreased on track to limiting global warming to 1.5 C. When looking at just Scope 1 and 2 methane emissions, they must be reduced by 60 percent by 2030.

This assessment of the oil and gas sector is critically timed before COP28, it must be used to re-enforce current cries that it is not possible for us to limit warming to 1.5 degrees and avert the worst impacts of climate change if we do not start to hold this vital sector to account. A few companies in the benchmark show that there is room to transition for those that act now, the rest of the sector must follow suit, and quickly, said Amir Sokolowski, Global Director, Climate at CDP.

Failing to invest in a credible transition

To halve the sector’s Scope 1 and 2 emissions, companies need to invest US$600 billion by 2030 into low-carbon solutions. This is not happening.

It is unacceptable that not enough companies have set targets, and of those that have, most don’t have targets that include scope 3 emissions reductions. Even the small number that have robust targets are not supporting them with a credible transition plan. Financial institutions, policymakers, and the public must put pressure on oil and gas companies to take steps to futureproof our planet and economy. There is room to transition for those that act now – while the rest of the sector must follow suit, and quickly, Laurent Babikian said.

Just one company, Finland-headed Neste Oyj, invests enough for a credible transition, spending 88 percent of its investment on low-carbon options such as advanced biofuels.

Oil production set to increase

Most of the companies in the benchmark that have set net-zero targets (covering Scope 1, 2, and 3) are headquartered in Europe. This represents 12 of just 18 companies setting these goals.

Companies headquartered in the EU+EFTA region have also improved their climate performance scores more, on average, than those globally. About 80 percent of the sector’s emissions globally come from the combustion of oil and gas products (Scope 3).

The sector’s only route to transition is phasing out fossil fuels. While this cannot happen overnight, companies are not even putting plans in place, and there is no sign that extraction is slowing down, with the sector last year committing half a trillion dollars[3] for new drilling and extraction.

Of the 10 EU and EFTA-based companies with extraction activities, none show a significant reduction in production before 2030. In fact, oil production is projected to increase and peak in 2028.

This is at odds with the International Energy Agency’s (IEA) Net-Zero Emissions by 2050 Scenario, which outlined that no new oil and gas expansion should occur beyond projects approved in 2021 and production must be rapidly declining by the end of this decade.

We need to see the oil and gas sector gaze at its future through science-aligned lenses, confronting structural, not cosmetic changes. Commitments and actions are limited across the board. Not enough companies have set targets, and of those that have, most don’t have targets that include Scope 3 emissions reductions. Even the small number that have targets that include Scope 3, are not supporting them with a credible transition plan. The advice could not be clearer from the IEA, we need to have stopped exploration by 2021, yet it is currently not set to peak until 2028, Amir Sokolowski said.

Incentives coupled with fossil growth

Over half of the total 100 companies assessed still link executive remuneration or incentives to the growth of fossil fuels but only 25 percent of companies assessed report how much of their capital expenditure is invested in low-carbon technologies.

The oil and gas sector’s failure to address emissions from its products and operations hampers international efforts to limit global warming to 1.5C. In the run-up to COP28 in Dubai, all eyes are on the oil and gas industry. But these companies are not planning for a low-carbon future and are failing to take responsibility in the immediate and long term. It is deeply concerning that no companies have made a commitment to halt the expansion of fossil fuel activities before 2030, said Vicky Sins, Decarbonisation and Energy Transformation Lead at World Benchmarking Alliance.

Progress on social diligence

In addition to decarbonization, WBA is calling for immediate and significant investment in protecting workers and communities who will be impacted by the transition to a net zero future.

A just transition must consider those who are at risk of negative impacts from necessary change, and account for them through investment in skills, training, and human rights due diligence.

Despite the dismal picture of decarbonization, the research shows that some progress has been made by some companies on human rights due diligence.

85 percent of companies are working to assess human rights risks, 56 percent now have human rights policies and 12 percent demonstrate effective human rights due diligence, including identifying potential risks to human rights, integrating salient risks into planning, and proactively responding to issues.

While there has been some progress in social aspects, the oil and gas sector is far behind where it needs to be. The oil and gas sector will not make the investment in rapid decarbonization and just transition without external pressure from key stakeholders. Our findings are a warning of the need for all stakeholders — investors, policymakers, and the public — to hold the oil and gas sector accountable, ended Vicky Sins.