Decoding the coming AGM  ↓

On May 11th, Equinor’s shareholders will be taking a climate test: will they vote for or against the company’s Energy Transition Plan? This should be an easy one for investors who are serious about their climate commitments given that Equinor’s climate plan is still far from aligned with a 1.5°C pathway (1). Despite new pledges in March, the oil major will blow up its total 1.5°C carbon budget as soon as 2037. (2) While climate scientists have made very clear that there are only 3 years left for Greenhouse Gas (GHG) emissions to peak and to avert catastrophic impacts, Equinor is delaying immediate action. CA100+ has also deemed Equinor’s capital allocation misaligned with climate targets given the company is still investing in oil production and development (3). Investors who have pledged to align their portfolios with 1.5°C and are serious about their climate commitments must vote against the company’s climate plan and call on the company to adopt more ambitious targets.

Its most recent decarbonation targets (4) are not up to the stake:

• The new plan undermines the previously agreed targets: while Equinor previously aimed for carbon neutrality over its scope 1 and 2 by 2030 (5), the company now aims for a 50% cut, against 2015 levels (6). Furthermore, Equinor still does not have any absolute target for its scope 3 emissions before 2050. This is a major concern given that they accounted for more than 90% of its emissions in 2019.

• Despite improving its strategy, Equinor’s new 2030 and 2035 targets aiming to reduce carbon intensity are still far from ambitious. Although they now cover emissions from scope 3 as well, the company aims for a 20% cut by 2030 (against 2019 levels). This is far from the 40% cut expected from Equinor to align with the International Energy Agency (IEA) Net Zero Scenario. As a result, Equinor’s energy mix will remain carbon intensive for too long, and the company will not reduce its absolute emission fast enough.

Instead of planning for drastic emission cuts, Equinor’s “climate” plan chooses to kick the can down the road, keep opening new fossil fuel fields, and massively rely on CCUS to meet its emissions reduction targets.

Equinor’s energy roadmap for the next decade includes increasing oil and gas production, before returning to 2020 levels by 2030. The major is currently developing 2677 mmboe of new fossil resources (7), enough to increase its total producing assets’ resources by more than 30% in the next few years.

More than half of this development is happening in unconventional sectors (8) that present increased environmental risks: more than 40% comes from fracking, ultradeep water, and extra heavy oil, while 23.9% comes from the Arctic region, a particularly sensitive ecosystem and critical area for climate regulation (9).

One of Equinor’s future projects – the €12bn deep offshore Bay du Nord mega-project in Canada – is under heavy attack from climate movements. If the Final Investment Decision (FID) is approved, the field’s first oil would not be achieved before… 2028 (10) while the project would produce up to 1 bn barrels over 30 years, making any carbon neutrality claim unrealistic (11). It would emit 430 million tons CO2eq, as much as 8 to 10 new coal plants.

Although the group is increasing its investments toward “low-carbon solutions”, it is in fact mainly betting on false solution instead of massively developing renewable power:

• The company’s new plan increases gross CAPEX allocation to renewable and low-carbon investment from 4% in 2020 to 30% by 2025 and 50% by 2030. But the devil lies in the detail : “low carbon” includes oil and gas production-related activities such as electrification of oil and gas platforms, development of Carbon Capture Utilization and Storage (CCUS), and production of blue hydrogen.

• In fact, by 2030, Equinor’s renewable energy capacity will reach a mere 12-16 GW and according to our calculations, account for no more than 6% of the company’s primary energy mix (12).

According to our analysis, Equinor aims for CCUS to cover up to a quarter of its mitigation targets by 2035 (13), despite high uncertainties around cost and scalability (14). This is both uncertain and unrealistic: according to our calculations, Equinor would need to develop more than 30 CCUS centers by 2050 (15), while there were only 28 operating centers across the world as of the end of 2020.

Climate will feature high on the agenda of Equinor’s next AGM on May 11th 2022. While the company will consult its shareholders on its own climate plan (item n°10), an unprecedented number of climate-related proposals have been filed by shareholders. No less than seven proposals are demanding Equinor to act more rapidly and more strongly on various climate-related issues (16): this demonstrates that many shareholders are not satisfied with Equinor’s own transition plan and would like the company to do much more.

Unfortunately, the company has decided to turn a deaf ear and recommends to vote against all these shareholder proposals (17).

Equinor’s arguments (risk of overlap with its own transition plan, deflection of the responsibility to the demand-side, detrimental role of Scope 3 absolute targets leading to sell carbon-intensive assets) are largely irrelevant and invalid. The fact that Equinor diverts the spirit of the Say on Climate initiative to force its investors to rubber-stamp its incomplete and misaligned climate plan should encourage shareholders to propose a more robust plan based a precisely-defined targets: this is not overlap, this is shareholders stepping up and substituting themselves to Equinor’s own failures. As regards Scope 3 absolute emissions, the fact that the company is still aggressively exploring and expanding production directly discredits its argument about the risk of selling or shutting down fossil assets.

With its climate-focused agenda, Equinor’s AGM will be a test case for the credibility and effectiveness of shareholder engagement. We call climate-conscious investors to vote against Equinor’s Energy Transition plan and to support all resolutions demanding the company to set ambitious GHG reduction targets and/or to stop expansion. Faced by a number of partially overlapping resolutions, it is particularly important that investors support items n°11 and 12, which address Equinor’s climate challenges at a strategic and systematic level. The table below provides a summary of our voting recommendations.

Notes :

1. According to projections based on the IEA and the IPCC 1.5°C scenarios.
2. More details on Major Failure – Reclaim Finance.
3. Climate Action 100+, Equinor ASA.
4. Decarbonization targets are based on emissions classification. Emissions are divided in three categories: scope 1, covering direct emissions related to a company’s operations; scope 2, covering indirect emissions related to a company’s operations (e.g. emissions related to the production of any electricity the company’s operations would source from a power producer and retailer); scope 3, covering all indirect emissions – not included in scope 2 – that occur in the value chain of the reporting company, including both upstream and downstream emissions (e.g. for an oil and gas company, emissions related to the use of its oil and gas products by its final users). Scope 3 is the most material scope of emissions for oil and gas companies.
5. Equinor, Sustainability report 2020.
6. Equinor, Energy transition plan, 2022.
7. Urgewald, GOGEL, 2021.
8. Urgewald analysis of Rystad Energy UCube data.
9. See our report on the risks incurred to the Arctic Region by the oil and gas industry Protect the Arctic.
10. Offshore Energy, Green light for controversial $12 billion Bay du Nord oil project, 2022.
11. Lettre ouverte au ministre de l’Environnement canadien.
12. Reclaim Finance calculations based on company’s reported data. More details on Major Failure.
13. From 7% to 13% of its absolute emissions reduction by 2030, and from 12% to 25% by 2035, according to our calculations.
14. Carbon Tracker Initiative, Oil companies should hedge their bets on CCUS and offsetting, 2021.
15. Assuming Equinor keep relying on CCUS to cover its future emissions reduction, based on its 2035 average reliance of 18.5%
16. Setting Paris-aligned or 1.5°C-compatible short- and medium-term GHG reduction targets across all scopes, downscaling and/or stopping oil and gas exploration or expansion at a global level or with a focus on a specific geographic area (in the Norwegian continental shelf or in the Barents Sea), planning for a Just Transition, ramping-up the production of renewable energy, etc.
17. See Equinor’s answers to shareholder proposals

Paris, May 12th, 2022 – Reaction to Equinor’s AGM :

Just a few days after state-owned oil giant Equinor’s announced to Norwegian media that its goal is to invest in new oil and gas for decades to come and to “drill until the final drop”, 97.5% of Equinor’s shareholders approved Equinor’s flawed “energy transition strategy” at its May 11 Annual General Meeting. On the other hand, ambitious shareholder resolutions on climate, such as the one filed by Follow This, Greenpeace and World Wide Fund for Nature (WWF), have all been rejected.

This is a very worrying result and another nail in the coffin of credible shareholder engagement. It is particularly striking to see that the Norwegian major garnered overwhelming support for its plan, despite the fact that one of Equinor’s co-lead investor for the $68 trillion Climate Action 100+ coalition publicly “flagged” the resolution to fellow investors and announced it would vote against it since it “failed to align with a 1.5C pathway”. Proxy advisor ISS also recommended to vote against the resolution and other large investors such as Storebrand pre-declared their decision to oppose it as well.

However disappointing, these results must be strongly nuanced. Equinor is majority-owned by the Norwegian government, which systematically casts its votes in favor of the company’s management. This means that no resolution can be approved or rejected without the consent of the Norwegian government. Looking only at non-governmental votes, 19% of private shareholders voted against Equinor’s flawed climate strategy. This is another hint that a small group of climate-conscious investors is increasingly wary of approving flawed climate plans, while bigger shareholders still claim to engage while rubber stamping whatever the management presents.