None of the CA100+ focus companies within upstream oil & gas production or coal & gas-powered electricity generation have capital allocation plans aligned with the Paris Agreement.
A disappointing 158 out of 164 (CA100+ focus companies did not appear to incorporate material climate-related matters and assumptions into their 2020 financial statements.
On March 30, 2022, Climate Action 100+ (CA100+) published its second round of the CA100+ Net Zero Company Benchmark assessments. It reveals the largest corporate emitters have shown insufficient progress and need to step up actions to be aligned with the ambitions of the Paris Agreement to limit temperature rise to 1.5°C against pre-industrial levels.
We have provided capital allocation and climate accounting Alignment Assessment Indicators to complement the Disclosure Framework to support investor engagements with CA100+ companies. This helps investors assess whether companies’ capital allocation activities are aligned with the Paris Agreement[1] and whether they consider climate issues in financial reporting. It covered:
- Financial statements and audit reports for all 164 CA100+ companies to assess the incorporation of material climate-related matters,
- Capex plans for 36 upstream oil & gas companies, and
- Announced phaseout schedules for 33 power companies’ coal & gas-powered electricity generation assets
Conclusions from Carbon Tracker’s Alignment Assessment Indicator analysis
Climate Accounting and Audit Alignment Assessments
None of the 164 CA100+ companies adequately disclosed the impact of using estimates and assumptions that would be required to achieve a 1.5˚C degree temperature pathway and net zero by 2050 (or sooner) [2] in 2020 financial statements[3]; only six companies even partially met the climate accounting assessment criteria.
Using a methodology that built on the “Flying Blind” work[4] (September 2021), we assessed whether all 164 focus companies[5] disclosed consideration of the financial impacts of climate matters, quantitative climate-related inputs, and the impact of net zero by 2050 (or sooner) in their financial statements (including the notes). We also looked for evidence that their auditors considered the effects of material climate-related matters when auditing these companies.
- No CA100+ focus company achieved a ‘Yes’ assessment score across all seven sub-categories (metrics) for adequate disclosure of consideration of climate-related matters.
- Only six companies achieved a ‘Partial’ assessment score; these companies were bp, BHP, Glencore, National Grid, Rio Tinto, and Shell.
- This means that these six companies and/or their auditors provided evidence of comprehensive consideration or relevant quantitative disclosures, in the financials, the audit reports or both. All six reported using IFRS Standards.
- Two of these companies – Rio Tinto and Shell, received a “Partial” score because of their auditors – KPMG and EY, respectively.
- No US company or auditor achieved a ‘Yes’ for any of the metrics.
- 158 companies failed our assessment – meaning that they did not disclose adequate, climate-related matters, or the potential financial impact of achieving a 1.5°C degree temperature pathway and net zero by 2050 (or sooner)
Upstream oil & gas production companies’ capital allocation plans
All 36 oil & gas companies that we assessed have project options that are inconsistent with oil and gas demand under a Paris aligned climate scenario such as IEA’s Beyond 2°C Scenario (B2DS), and two out of three companies have sanctioned such projects in 2020.
Based on our least-cost of supply climate scenario analysis of unsanctioned upstream oil and gas projects from “Adapt to Survive” (September 2021), we identify and quantify capex opportunities that are inconsistent with the demand constraints from the B2DS.
- All 36 upstream oil & gas companies have unsanctioned project options that are inconsistent with the demand constraints under the B2DS. Thus, all CA100+ focus companies are exposed to stranding upstream oil and gas assets.
- Majority of companies sanctioned inconsistent projects in the most recent analysed full year of 2020. Around two out of three focus companies sanctioned new projects that were inconsistent with the B2DS – a slight improvement from three out of four focus companies in 2019. Hence, a signal that companies’ project approval processes are remain unaligned with the Paris Agreement.
- 67% of companies’ unsanctioned oil & gas capex opportunities are inconsistent with the B2DSwith our business-as-usual (BAU) scenario from the IEA’s Stated Policies Scenario (STEPS).
- All unsanctioned oil opportunities are inconsistent with the B2DS – this amounts to about $750bn of unsanctioned oil capex between 2021-2030 that are inconsistent with both B2DS and STEPS. Given most capex opportunities are inconsistent with a Paris aligned scenario emphasizes the importance that investors can assess companies’ project approval processes and assumptions used.
- Less than 40% of companies have disclosed the commodity price assumptions used for asset impairment testing. Impairment prices are a proxy for commodity price assumptions used by a company for strategic decisions, hence, weak disclosure reduces investors’ ability to evaluate strategies.
- Oil & gas production will decline by 33% in the 2030s for the 36 focus companies if no new upstream projects are sanctioned. IEA’s Net Zero Emissions by 2050 scenario concluded that no new oil & gas supply can be sanctioned, thus if we assume no new oil and gas project sanctioning and running off the existing production, the combined oil and gas production will be 33% lower in the 2030s against a 2021 baseline with uneven impact by company.
Individual Company-level Profiles available at: www.carbontracker.org/company-profiles/
Power generation companies’ capital allocation plans
None of the 33 power generation companies that we assessed have announced a full phase-out schedule for all coal and gas generation assets that is consistent with a Paris- aligned scenario such as IEA’s Beyond 2°C Scenario (B2DS); many have, however, announced net zero commitments.
Based on our least-cost of supply climate scenario analysis outlined in “Don’t Revive Coal” and “Put Gas on Standby” (2021) that compare the volume and pace of announced phase-out schedules for unabated coal and gas-powered electricity generation with a Paris-aligned scenario. This shows which assets will be the first to become unprofitable to operate and hence, which assets must be retired first.
- None of the 33 companies have announced full phase-out schedules for both coal and gas power generation that are consistent with the demand constraints from the B2DS and with an announced phase-out year for each asset.
- Coal – 10 of 33 companies have announced a full phase-out schedule for their entire coal fleet that is consistent with the B2DS – up from four companies in 2018
- Two companies have announced a full phase-out of coal, but with announced phase-out years that are inconsistent with the B2DS
- 13 companies have announced a partial coal phase-out and seven companies have provided insufficient information to assess
- On average, 36% of companies’ coal generation capacity is inconsistent with the demand constraints outlined in the B2DS
- Gas – None of 32 companies with gas capacity has announced a full phase-out of for their entire gas fleet that is consistent with the B2DS
- 13 companies have announced a partial gas phase-out and 19 have provided insufficient information to assess
- On average, 56% of companies’ gas generation capacity is inconsistent with the demand constrains outlined in the B2DS
- If focus companies intend to reduce emissions and meet net zero targets, they will have to aggressively phase-out coal and gas-powered generation assets, forcing shareholders to find out how and when companies will do so.
See individual Company-level Profiles at: www.carbontracker.org/company-profiles/
Carbon Tracker is a data analytics and research partner to the CA100+, the world’s largest investor engagement initiative on climate change with almost 700 institutional investors, responsible for over $68 trillion in assets under management.
See our updated company profiles – to support investors’ engagement, we have created individual company profiles with up to date ownership, additional climate scenario analytics and climate target analysis for CA100+ companies within upstream oil & gas and power generation, available at: www.carbontracker.org/company-profiles/
For details about methodologies and a summary of the company-level conclusions see “A long way home – until CA100+ companies’ capital allocation plans are aligned with the Paris Agreement” coming soon.
To learn more about the Climate Accounting and Audit Assessments – join our webinars on 12th April. Asia/EU 6pm JST/10am BST or US/EU 12pm EST/5pm BST/
