Changing our Climate: active engagement in oil & gas

In AXA IM view, in comparison with its peers within the oil and gas sector, TotalEnergies’ strategy appears to be more advanced, and the company is regularly making progress on setting climate-related targets and related-disclosure. Over the past years, the company added new 2025 targets, strengthened its 2030 scope 3 oil target, provided more detailed explanations of how targets will be achieved, and enhanced its scenario analysis and capex disclosure. Earlier this year, the company gave a number for avoided emissions related to LNG sales, highlighting the benefits of natural gas when it displaces a more carbon intensive fuel, most notably coal.

TotalEnergies submitted its transition strategy at its 2021 AGM, which received around 92% support. Since then, it submits annually to shareholder vote a report detailing the progress made against the strategy, which receives stable support from around 89% of votes at the 2022 and 2023 AGMs.

BP presented in September 2020 what we view as a radical corporate reorganisation articulated around its net zero ambitions. The company announced its intention to shrink its upstream division – largely by disposing of assets -, grow its renewable power massively and increase the scale of its client-facing units to sell more low-carbon products. Execution was described as challenging, and the capital required in the early years to be significant (low carbon capex were 3% of total in 2019, 30% in 2022 and the target is 50% in 2030). However, if successful, the strategy will make BP a greener company from 2030 onward. Yet, in February 2023, BP announced a scaling back of its plan to cut O&G output in 2030 from 40% to 25%, due to its decision to sell less assets than initially planned.

BP submitted its transition strategy to a shareholder vote for the first time at its 2022 AGM, which received 88.5% support. The company has not committed to a regular vote on the progresses made (no resolution about this in 2023), although it may submit another vote on its climate strategy in 2025.

Shell’s angle is to leverage on its super-sized marketing footprint – the company sells three times more energy than it produces – and develop low carbon solutions to address the different needs of its customers. LNG – a market where Shell is already the largest player – and petrochemicals will be further developed. Shell has also strong ambitions in carbon sequestration. Shell has set itself a very demanding goal by targeting to be net zero above and beyond its scope 3 perimeter (693Mt), aiming at a much larger self-defined 1,800Mt net carbon footprint. However, we are concerned by the lack of absolute Scope 3 emissions reduction targets and by what we see as an excessive (relative to peers) reliance on nature-based offsets for the company’s 2030 targets. In addition, in June 2023 (hence after the AGM), Shell announced a scale down of its low-carbon investments, from 33% of total investments in 2022 to 15%-20% over 2023-25.

Shell submitted its transition strategy at its 2021 AGM, which received, with 88.7% of support. It has also committed to an annual vote on the progress updates to an annual vote, which recorded in 2022 and 2023 approx. 80% of votes in favour.

Chevron’s energy transition strategy is not as demanding relative to its main European peers. While they have goals to achieve net zero by 2050 for their scope 1, 2 and 3 and across their entire activities, Chevron is limiting this goal to its scope 1 and 2 and to its upstream business, excluding all downstream operations. Chevron is only integrating scope 3 emissions into its targets to reduce emission intensity of its energy sales, and this target is all but demanding. Chevron is more credible when it comes to developing low carbon products such as biofuels, hydrogen and renewable gas, although its peers are pursuing the same avenues. Chevron however, unlike all its European peers, is not planning on developing a renewable electricity business, clearly stressing that it does not want to become an electric utility. Overall, although Chevron has improved its energy transition strategy over the past two years, it is still some way behind the industry leaders in its strategy. Chevron has not yet requested shareholders to vote on its energy transition strategy.

2023 AGM results reflect what we consider to be a growing trans-Atlantic rift when it comes to the oil industry’s response and responsibility to climate change. Although we consider Chevron to be a laggard both in terms of strategy and governance (the company is the only one from our sample that never requested shareholders’ approval on its climate strategy), the company did not face the same amount of shareholder dissatisfaction.

Indeed, the Scope 3-related proposal that we co-filed at Chevron’s 2023 AGM not only recorded the lowest level of support since these types of proposals are being submitted at the company’s AGM ² , but also the lowest support level among other European peers³ (even though resolutions at Shell and BP were binding, vs. purely advisory at Chevon).

This will not discourage us to continue the dialogue with TotalEnergies, Shell, BP and Chevron. We will notably remain vigilant around reduction targets that revolve around selling of assets, as we are seeking to support real-world decarbonisation. A big dimension of our engagement will also encompass demand criteria to avoid any dramatic increase in energy prices should supply be cut independently of demand and technological developments.

Yet, we are not facing the same responsiveness from all of them, which as we know is a major key to engagement success. Indeed, while between 2021 and 2023, TotalEnergies broadened the scope of its climate targets, improved transparency on capex disclosure and scenario analysis, started reporting on avoided emissions and committed to an annual vote on its Progress Report, our experience at Chevron is somewhat different. Hence, while we aim to continue dialogue with the company over the next years, we will keep pushing for strengthened ambition including through our votes at future general meetings.

The stark reality of climate change highlights the urgent need for economies to transition to a different energy ecosystem, weaning us off fossil fuels. We are committed to supporting the energy transition in all its dimensions, embracing its complexity, discarding simplistic solutions, thinking long term, and acting now. This means thinking in terms of entire value chains, whether they relate to supply or to demand, but also calling for government action to help accelerate an orderly transition to a more sustainable world.