Mon, Mar 4 2024 4 March, 2024

Allegations of super-major greenwashing in the spotlight

A new study has found that super-major’s rhetoric on decarbonising is not being matched by equivalent actions.

Aerial top down photo of industrial oil and fuel tanker cruising open ocean sea (Photo credit: Adobe Stock/aerial-drone)

EDINBURGH — Accusations of greenwashing are nothing new for the oil and gas industry, but with the world’s largest producers talking about decarbonisation more than ever, their actions are also being more closely scrutinised.

Against this backdrop, a new study was recently published in PLOS One, citing a need to “objectively evaluate current and historical decarbonisation efforts and investment behaviour” among leading super-majors.

The study used data collected over 2009-2020 to assess European super-majors Shell and BP and US-based ExxonMobil and Chevron. Three aspects of their behaviour were examined – the companies’ discourse, their pledges and actions and their investments – to establish how they were performing in terms of decarbonisation and the energy transition.

The study found a “strong” increase in discourse related to topics such as climate, low-carbon and transition, as well as “increasing tendencies” towards strategies for decarbonising. However, it added that thus far, these strategies were dominated by pledges rather than actions and that the volume of investment into decarbonisation was not matching the discourse. It said that ultimately the companies studied remained dependent on fossil fuels while their spending on clean energy was either “insignificant” or “opaque.”

“Until actions and investment behaviour are brought into alignment with discourse, accusations of greenwashing appear well-founded,” the study concluded.

Limited progress

Further developments related to decarbonisation by super-majors emerged in 2021, after the period covered in the study. For example, ExxonMobil and Chevron – which have lagged behind their European counterparts on both discourse and action when it comes to the energy transition – adopted goals of net zero greenhouse gas (GHG) emissions at the end of 2021.

“The most interesting changes have come from the US majors, but they really fall short of what the European majors have on the table, showing how far Chevron and ExxonMobil are trailing their counterparts,” Gregory Trencher, an associate professor at Kyoto University’s Graduate School of Global Environmental Studies and one of the study’s co-authors, told Gas Outlook.

He said Chevron and ExxonMobil’s net zero targets were only “aspirational” and covered Scope 1 and 2 emissions but not Scope 3, which stem from the end use of their products by customers.

“Thus, the 85% or so of lifecycle GHG emissions that are created when these products are burned are omitted,” Trencher said. These new Chevron and ExxonMobil targets “do nothing to change our conclusions that actions and investments don’t match the increased rhetoric. If anything, they only support them further,” he added.

What to expect

The study’s findings come as oil and gas prices are rising, spurred further by Russia’s full-scale invasion of Ukraine on February 24. Crude prices have risen above $100 per barrel for the first time since 2014, and this will do nothing to discourage oil and gas companies from pursuing fossil fuels. Indeed, the study’s authors expect the super-majors to develop their remaining reserves over the coming years to prevent these assets becoming stranded as the energy transition advances.

“BP is the only major to have explicitly committed to scaling down its fossil fuel production,” said Trencher. The study identified something curious in the case of BP – that its upstream earnings ratio had fallen over 2018-19, even as its upstream capital expenditure ratio had risen. The study’s authors were unable to identify a clear explanation for this, but suggested that if the trend were to continue, it would also give BP a financial rationale for reducing its dependence on fossil fuels.

Rising oil and gas prices threaten to change that, though, bolstering upstream earnings relative to capital spending. And indeed, the fact that the other super-majors were not similarly affected in 2018-19 suggests that BP’s upstream earnings performance in those years was unusual.

“What is interesting here is that the reverse situation, like windfall profits for the majors over the past few months, will serve as an incentive to delay the transition away from fossil fuels,” said Trencher.

These findings come as the world grapples with how to balance rising energy prices with plans to transition away from fossil fuels. Questions are arising over whether the appetite for decarbonisation will remain as higher prices start to hit consumers, or whether there will be calls for producers to help lower prices by raising oil and gas output. On top of this, some countries could accelerate efforts to reduce their dependence on Russian oil and gas, potentially spurring demand for fossil fuel production elsewhere. However, the picture is further complicated by the fact that these trends could also benefit the renewable industry.

“Higher energy prices usually make renewable energy more competitive against fossil fuels, which could boost investment flows to those sectors,” Nneka Chike-Obi, director of sustainable finance at Fitch Ratings, told Gas Outlook.

“For many sustainability-focused investors, higher energy prices are part of the path to net zero,” she said. “This is based on the view that fossil fuels are under-priced because they fail to incorporate the economic externalities associated with their use – climate change,” she explained.

“The question for some would be – who pays, the consumer or the producer?” Chike-Obi continued. “There are a variety of positions among investors, ranging from divestment, to increased engagement to shareholder activism.”

As these dynamics play out, oil and gas producers will also face an increased risk of litigation related to their environmental, social and governance (ESG) performance, especially on decarbonisation. Shell is already appealing against a 2021 court ruling ordering it to cut emissions more quickly than previously planned.

As ESG grows in focus, Fitch expects greater public scrutiny and with it, the potential for reputational damage and investor activism against those not moving towards decarbonisation goals.