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Climate Action 100+, a lobby group comprising many of the world’s biggest asset managers, has criticized Big Oil majors for falling short of a set of criteria devised to assess a company’s preparedness for a net-zero world.
The finding, as detailed in a recent Reuters report, is hardly a surprise since it has been a while since anyone involved in the transition push had a good word to say about the oil industry. However, the timing of this latest attack on the oil industry is notable. Climate Action 100+ is slamming oil and gas producers for doing what they do as more signs emerge that the transition away from oil and gas will be a lot more challenging than hoped.
Climate Action 100+ used a rating framework designed by the Transition Pathway Initiative Centre, an entity of the London School of Economics to rate the 10 biggest public oil and gas companies in Europe and North America. It found that, overall, those companies only met 19% of the requirements set out in the framework for net-zero preparedness.
The ratings were done in three segments, namely Disclosure, Alignment, and Climate Solutions. The best performer was TotalEnergies, which scored high on Disclosure, which refers to how open a company is about its operations, and on Climate Solutions, which covers investments in alternative energy. Like the rest of the companies analyzed, however, even TotalEnergies rated low on Alignment, which refers to the amount of oil and gas each company produces.
Climate Action 100+ essentially criticized Big Oil for producing too much oil and gas, for not reporting enough about its operations, and for not investing enough in alternative energy. None of these criticisms are new, and none of them are going away.
But they are coming at the industry at a time when physical demand for oil and gas is shattering forecasts of peak oil and gas. With them, the health of demand for oil and gas is also shattering the argument that a transition away from hydrocarbons is both possible and possible fast.
Artificial intelligence is a pertinent example. Big Tech is in a rush to expand on its AI capabilities and sell them to everyone they work with. But there is a problem. AI data centers are even more power hungry than non-AI data centers. This means that AI is driving a surge in electricity demand, and even staunch advocates of the transition, such as Ernest Monitz, are admitting that this demand cannot be met without hydrocarbons.
“We’re not going to build 100 gigawatts of new renewables in a few years. You’re kind of stuck,” Monitz said recently, as quoted by the Wall Street Journal in an article detailing the dilemma of AI developers: growth versus the emissions footprint of the energy used to power that growth.
There is also the question of energy security. It may have disappeared from news headlines, but it is as pressing as it was two years ago. The UK recently reported oil and gas production from its part of the North Sea had plunged last year to the lowest since 1999. The plunge—40% in oil production in the third quarter of the year—was driven by the UK’s transition ambitions and a 75% windfall profit tax that discouraged producers from doing anything about expansion. Had the transition path been smooth, the lost output would have been replaced by electricity produced by wind and solar. Instead, the UK simply raised its hydrocarbon imports.
Germany is another case in point as it commits billions of euro for the construction of new gas-fired generation capacity to back up its growing fleet of wind and solar installations. The government argues these power plants will be ready to switch to hydrogen if and when green hydrogen becomes commercially viable. However, this does not negate the fact that wind and solar need backup—and the only viable backup right now and for a while yet are hydrocarbons.
So, Climate Action 100+, which by the way, recently lost some high-profile members such as JP Morgan Asset Management, has a problem with Big Oil producing oil and gas when global oil demand is about to break another record this year. It also has a problem with the industry’s transition plans: the plans are there, but how the companies will implement them has not been detailed, the group said in its assessment.
This is a criticism that can be directed at most companies with a net-zero plan, if not all of them, including the members of the Climate Action 100+. While having a net-zero plan seems to be all the rage in the corporate world these days, not least under pressure from activist formations, these plans tend to be sparing on the nitty-gritty.
This is another unsurprising aspect of the transition push. Transition details come with price tags, and these price tags are lately proving to be quite a bit higher than originally expected. And the transition itself, at whatever cost, is not going as smoothly as it should have, per plans.
Europe, the most ambitious transition champion, is falling behind its own transition targets. Despite being open about emissions. Despite discouraging oil and gas production. And despite having perhaps the most detailed net-zero plans in the world.
