Oil & Gas

In 2021, the International Energy Agency (IEA) released its Net Zero Emissions by 2050 Scenario (NZE), which sets out a pathway to reduce emissions from the global energy system aligned with limiting warming to 1.5°C. Under the NZE, fossil fuel use falls dramatically in the next decade, and remaining fossil fuel demand can be met through existing supplies and infrastructure. Approving new oil and gas fields is incompatible with this pathway.

However, according to analyses by Carbon Tracker, the world’s largest oil companies have projects both sanctioned (those currently producing or under development) and unsanctioned (those not yet under development) over the course of the next two decades that would exceed the carbon budget for a 2.0°C of global warming, let alone 1.5°C.

Recent geopolitical and global economic factors have fundamentally reshaped oil and gas markets, including the ongoing impacts of the COVID-19 pandemic and the global reaction to the Russian invasion of Ukraine. These shocks have contributed to substantial volatility in energy markets and inflationary pressures across the global economy. In early 2022, investor pressure to maintain “capital discipline” was the primary reason cited by oil and gas executives for restraining growth in production despite high oil prices at the time.

Since, the clean energy transition has accelerated as a result of concerted government efforts to fast track clean technology adoption, reduce reliance on Russian oil and gas, and improve the resilience of the energy system.

Despite this, the oil and gas industry has used the war in Ukraine to advocate for expansionist public policies, focusing its U.S. lobbying demands on favorable policies for oil and gas and repealing previous climate policies and decisions.

Target Setting

In order to be aligned with limiting warming to 1.5°C, oil and gas companies must set net zero by 2050 targets that reduce absolute emissions rather than emissions intensity and apply to all emissions, most importantly those from the use of products sold (scope 3 emissions).

Net zero commitments should also incorporate interim targets and milestones that call for accelerated emissions reduction between now and 2030 rather than delaying the hard task of emissions reduction until after that date. According to the Net Zero by 2050 report, emissions from the burning of oil and gas must fall by 29% between 2019 and 2030 to remain on track.

Net zero commitments must cover projects on a full equity share basis, such that all joint ventures and subsidiaries are covered by the company-wide target.

Companies should achieve net zero by 2050 with limited use of offsets, negative emissions, or unproven or uncommercialized technologies, including carbon capture, utilization and storage (CCUS). Relying on CCUS – rather than phasing out the production of fossil fuels – is a risky strategy.Even pro-CCUS sources acknowledge that many proposed CCUS technologies are as yet unproven, and a massive infrastructure investment and buildout would be required to capture enough carbon to limit warming to 1.5°C. Oil and gas companies should clearly disclose specific plans to use offsets or negative emissions to achieve net zero emissions by 2050, so that investors may assess the quality and credibility of their plans.

Key Data Sources:

Climate Action 100+, Disclosure Indicators 1-4
CDP (formerly Carbon Disclosure Project), company survey responses
Science-Based Targets initiative, Companies list and Sector Guidance

Capital Allocation

Given that oil supplies currently in production already exceed the carbon budget for limiting warming to 1.5°C, oil and gas companies must immediately cease approving investment in new projects that fall outside the carbon budget.

Investors should use the NZE scenario to assess companies’ climate policies, transition scenarios and capital allocation alignment. Importantly, no new oil or gas fields should be approved for development under a 1.5°C pathway ; no investment in new oil and gas production should be undertaken; and production levels must fall by the 2030s. Under such a scenario, asset stranding of additional new production assets as well as existing assets is a major risk to investors. According to Carbon Tracker, under the NZE, production of oil and gas must fall by 22% by 2030 and 44% by 2035. Controversial new oil and gas projects such as ConocoPhillips’ Willow Project in the National Petroleum Reserve on Alaska’s North Slope, which entail a massive expansion in extractive infrastructure, merit close scrutiny from investors.

Key Data Sources

Climate Action 100+, Climate Action 100+ Net-Zero Company Benchmark: Company assessments, see Disclosure Indicator 6 and supplemental data
Urgewald, Global Oil and Gas Exit List
Carbon Tracker, Fault Lines (2020); Adapt to Survive (2021), Paris Maligned (2022)
Carbon Tracker, Company Profiles: Oil & Gas Companies

Policy Influence

Oil and gas companies must fully align their policy influence activities, including political spending and lobbying, with the policy settings required to accelerate sector-wide emissions on a timeline necessary to limit warming to 1.5°C. Oil and gas companies must provide full disclosure of all political and lobbying spending in all jurisdictions to allow investors to assess this alignment. Finally, companies must ensure the alignment with 1.5°C outcomes of policy influence activities by any trade associations or similar entities of which they are members or to which they contribute, or cease membership of such organizations.

Key Data Sources:

Climate Action 100+ Net-Zero Company Benchmark: Company assessments, see Disclosure Indicator 7 and supplemental data
InfluenceMap,
List of companies and influencers

Summary Metrics

Category	Climate Action 100+ Benchmark Reference
Target setting	Disclosure Indicator 1.1	The company has set an ambition to achieve net zero GHG emissions by 2050 or sooner.
	Disclosure Indicator 1.1A	The company has made a qualitative net zero GHG emissions ambition statement that explicitly includes at least 95% of its scope 1 and 2 emissions.
	Disclosure Indicator 1.1B	The company’s net zero GHG emissions ambition covers the most relevant scope 3 GHG emissions categories for the company’s sector, where applicable.
	Disclosure Indicator 3.1	The company has set a target for reducing its GHG emissions by between 2026 and 2035 on a clearly defined scope of emissions.
	Disclosure Indicator 3.2	The medium-term (2026 to 2035) GHG reduction target covers at least 95% of scope 1 & 2 emissions and the most relevant scope 3 emissions (where applicable).
	Disclosure Indicator 3.2A	The company has specified that this target covers at least 95% of its total scope 1 and 2 emissions.
	Disclosure Indicator 3.2B	If the company has set a scope 3 GHG emissions target, it covers the most relevant scope 3 emissions categories for the company’s sector (for applicable sectors), and the company has published the methodology used to establish any scope 3 target.
	Disclosure Indicator 3.3	The target (or, in the absence of a target, the company’s latest disclosed GHG emissions intensity) is aligned with the goal of limiting global warming to 1.5°C.
Capital allocation	Disclosure Indicator 6.1	The company is working to decarbonise its capital expenditures.
	Disclosure Indicator 6.1A	The company explicitly commits to align its capital expenditure plans with its long-term GHG reduction target OR to phase out planned expenditure in unabated carbon intensive assets or products.
	Disclosure Indicator 6.1B	The company explicitly commits to align its capital expenditure plans with the Paris Agreement’s objective of limiting global warming to 1.5°C AND to phase out investment in unabated carbon intensive assets or products.
	Capital Allocation Alignment Assessment (Carbon Tracker) 1: Company’s Recent Actions	In the most recent full year (2021), were all the company’s upstream oil and gas CAPEX projects consistent with the IEA’s Beyond 2°C Scenario (B2DS)?
	Capital Allocation Alignment Assessment (Carbon Tracker) 2: Capex Analysis	What percentage of the company's potential future (2022-2030) unsanctioned oil and gas CAPEX is inconsistent with the IEA's B2DS?
	Capital Allocation Alignment Assessment (Carbon Tracker) 4: Net Zero Analysis	What is the company’s oil and gas production level in the 2030s (against a 2022 baseline) assuming no new oil and gas projects are sanctioned as stated by the IEA's NZE?
Policy influence	Climate Policy Engagement Alignment (Influence Map) 1: Organization Score	The level of company support for (or opposition to) Paris Agreement-aligned climate policy.
Policy influence	Climate Policy Engagement Alignment (Influence Map) 2: Relationship Score	The level of a company’s industry associations’ support for (or opposition to) Paris Agreement-aligned climate policy.

Changes From Prior Years

In 2023, we have updated our metrics to more closely align with the Climate Action 100+ Net Zero Company Benchmark Indicators for the oil and gas sector, while still focusing on the three core pillars of target setting, capital allocation, and policy influence. This allows for a more standardized assessment across companies that is broadly accepted by investors.