Big Oil’s Pledge: Near-Zero Methane Emissions by 2030 Questioned by ESG Investors

Summary

At the U.N. climate talks in Dubai, 50 leading oil and gas firms pledge to reduce their methane emissions almost to zero by 2030 and achieve net-zero carbon emissions in their energy consumption and production by 2050. The pledge doesn’t address Scope 3 emissions, contributing to 85% of the emissions caused by the consumption of fuels produced by these companies. Several state-owned companies have newly joined in; however, ESG fund investors believe these commitments aren’t enough. Candriam will continue to exclude major oil and gas companies from its socially responsible funds.

Vow by Oil and Gas Firms

The article is authored by Simon Jessop and Tommy Wilkes. They discuss a promise made by the world’s 50 largest oil and gas companies—presented at the U.N. climate discussions in Dubai—to aim for near-zero methane emissions by 2030 and net-zero carbon emissions by 2050 in terms of their energy usage and production.

Unaddressed Emissions and New Joiners

These commitments cover Scope 1 and 2 emissions associated with the firms’ in-house procedures, which constitute around 15% of the total emissions related to the companies. However, the pledge does not consider Scope 3 emissions caused by the use of fuels these companies manufacture, which account for the remaining 85% of emissions. Ahead of the COP28 announcement, some energy corporations had already made promises. Nonetheless, several state-owned firms have recently become part of the initiative.

Stakeholder’s View and The Paris Agreement

ESG funds investors—those who invest in organizations that meet environmental, social, and governance standards—assert that these pledges are long overdue and insufficient. Candriam, an asset management firm, stated that it will persist in excluding significant oil and gas corporations from its socially responsible funds because none meets their preferred scenario for fulfilling the objectives of the Paris Agreement on climate change, which stipulates limiting global warming to 2 degrees Celsius (3.6 Fahrenheit) or preferably 1.5C.

Energy Transition

Alix Chosson, Candriam’s chief ESG analyst, remarked that transitioning to a low-carbon world doesn’t entail producing the same quantity of oil and gas in a carbon-efficient fashion. It means shifting away from fossil fuels as the primary energy sources towards low-carbon energy sources.

Future of Fossil Fuels

The U.N. climate talks, hosted by the United Arab Emirates, an OPEC member, have drawn record numbers from the oil and gas sector. However, the delegates are divided over the text concerning the future of fossil fuels.

ESG Stance on Energy Producers

ESG funds have struggled to decide how to approach traditional energy producers. Some exclude them on scientific grounds. Others argue that divestment is ineffective and that it’s better to convince these companies to pollute less by holding them accountable for Scope 3 emissions.

Impact on Trading

Given the heightened focus on environmental, social, and governance factors, these developments could significantly impact trading, especially in energy commodities and the stocks of major oil and gas firms.

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