Decoding the coming AGM ↓

On the 12th of May, investors will be called to vote upon BP’s climate plan and progress toward Net Zero summarized in its “Net Zero ambition report” (1). Despite recent improvements on its decarbonization targets (2), the oil and gas producer’s ambition is still far from aligned with what climate science requires to stay on a 1.5°C pathway (3). By 2050, our calculations based on the company’s data show it will overshoot its 1.5°C carbon budget by at least 50.9%. While the latest Intergovernmental Panel on Climate Change (IPCC) report made clear short-term action is key to mitigating climate change, BP is investing in new oil and gas fields, and is expected to consume more than 80% of its carbon budget as early as by 2030 (4). For the Annual General Meeting (AGM), we call on climate-conscious shareholders to a) vote against BP’s flawed climate plan, b) vote for the alternative resolution filed by shareholders demanding Paris-aligned targets, and c) sanction the companies anti-climate oil & gas expansion plans by voting out incumbent Directors. 

In February 2022, BP announced improved decarbonization targets (5), aiming to cut its scope 1 and 2 emissions by 50% by 2030, and to achieve net zero lifecycle emissions over its energy products by 2050. However, as ambitious as these targets may seem, BP missed the opportunity to set for the first time a real and meaningful target for its absolute scope 3 emissions in the short-term. Currently, BP aims to cut scope 3 emissions by 35-40% by 2030. However the devil lies in the details: due to hidden methodological choices, this target covers only 26.7% of its total reported scope 3 emissions (6). All in all, the company aims to decrease its total emissions (scope 1 to 3) by a mere 11.6% by 2030, less than a third of the 41% required cut in emissions prescribed by the International Energy Agency (IEA) Net Zero scenario (7). It’s no small issue: scope 3 emissions accounted for more than 95% of the group’s total reported emissions in 2019 (8).

At the same time, BP set itself new targets for the carbon intensity of its sold energy products for 2030 and 2050: the group aims for a 15 to 20% cut in its carbon intensity of sold energy products (9) by 2030 (against 2019 levels), and for net zero by 2050. However, to align with a 1.5°C scenario by 2030 (10), BP’s carbon intensity should decrease by 47%, which is almost three times more ambitious than its current target. Moreover, carbon intensity targets should be considered carefully by investors, as they do not guarantee a decrease for absolute emissions and need to be considered along with changes in the volumes of sold energy products (11). BP is a textbook case to illustrate this metric’s shortcoming: the company itself declared it anticipates “the absolute level of emissions associated with [its] marketed products will grow up to 2030, even as the carbon intensity covered by aim 3 falls. This is mainly driven by [its] growth plans in fast-growing markets” (12).

In 2020, BP announced it would reduce its own upstream production by 40% (13), equivalent to a 30% cut when including Rosneft’s contribution. Following recent developments in Ukraine and the subsequent exit of the company from Rosneft, it is not clear yet how the company will revise this target. In any case, BP’s upstream production decline strategy is problematic: rather than committing not to develop new fields, the group is reorganizing its portfolio through “low-cost” new fossil development, and divestment from least profitable assets (14). As a result, divested fields will be operated by other actors, and the development of new fields will result in a net increase of emissions at the global scale.

Currently, BP is developing 3189 Million Barrel of Oil Equivalent (MMBOE) of new upstream assets, enough to increase its producing resources by 15% over the next few years. Of this development, more than half will happen in unconventional sectors (15) carrying high environmental risks: 26% will come from fracking known for its methane – a potent greenhouse gas – leakages (16). 31% is planned in ultradeep waters, a risky sector prone to environmental disasters, including one generated by BP (17).

The group’s heavy focus on oil and gas is also reflected in its CAPEX allocation strategy. BP plans to dedicate 23% of its total investments to its low-carbon activities in 2025 ( 3bn to $4bn) (18). Here again, the devil lies in the details: the low-carbon business segment of BP also includes Carbon Capture and Storage (CCUS), which the company aims to use to produce blue hydrogen, an energy product whose climate benefit is highly contested (19). Aside from this, BP also plans to develop 50 GW of renewable power by 2050. If the group meets this target, and sticks to its hydrocarbon reduction plan, renewable energy could represent up to 21% of its primary energy production by 2030 (20). However, increasing renewable energy production will bring no climate benefit if the company simultaneously increases its absolute emissions. Although renewable power is needed to drive the energy transition, one should be careful not to confuse transition strategies with diversification strategies, and should not assess the group’s company on its sole renewable ambitions.

For the first time, BP will consult its shareholders on its climate strategy, through an advisory “Say on Climate” vote (resolution n°3, asking to support the company’s “Net Zero – from ambition to action” report).

As the analysis above clearly demonstrates, BP’s so-called climate strategy is very far from being aligned on a 1.5°C pathway. Results from the CA100+ “Net Zero Company Benchmark” confirm this finding (21): the oil & gas major’s transition plan meets none of the nine criteria assessed in the benchmark – this is one of the worst performance among European oil & gas actors, even if none of those present adequate climate plans. Faced with the risk of rubber-stamping an incomplete and unambitious climate plan, BP shareholders should therefore vote against resolution n°3 and oppose BP’s deeply flawed “Say on Climate”.

This vote against the company’s in-house climate resolution should be completed by a vote for resolution n°24, filed by a group of shareholders coordinated by Follow This and asking BP to set Paris-aligned climate targets. The company’s decision not to support this resolution appears to be based on weak arguments:

• BP claims that it is already implementing what the resolution demands (net zero ambition, short-, medium-, and long-term targets, regular updates to shareholders) but the company’s failure across all the criteria of the CA100+ benchmark prove otherwise
• BP claims that the resolution is generic and repeats previous – and failed – attempts to have a similar resolution pass. This omits the fact that the support for this resolution has significantly increased since it was first filed (from 8.4% in 2019 to 21% in 2021), meaning that there is a real dynamic from shareholders behind it
• BP claims that the resolution is disruptive because the board has already approved and is already implementing a climate strategy. However, shareholders were never consulted on this strategy. This argument also highlights the importance of voting against resolution n°3 (to prevent the risk of “locking in” BP on an inadequate climate strategy for a long period of time)

However, voting against BP’s climate plan and for a more credible alternative one is not enough. Investors must also send a more direct message to the company regarding the urgency of stopping oil and gas expansion. Since BP’s articles of association requires the entire Board to resign and be reelected each year and since no new board member is proposed this year, the AGM will be asked to reelect all of BP’s Directors, who are directly accountable for the company’s failing climate strategy. As Directors, they share a direct responsibility in the company’s fossil expansion policy. Therefore, climate-conscious investors should vote against their reappointment, as an escalation strategy for their failure to make the company stop developing new 1.5°C-incompatible oil and gas projects. 

The table below provides a summary of our voting recommendations.  

Notes :

1. BP’s Net Zero report 2022
2. 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.
3. BP’s update on strategic progress, February 2022
4. More details on Major Failure – Reclaim Finance
5. BP’s update on strategic progress, February 2022
6. This target covers emissions related to marketed energy products coming from its own upstream production. Hence are excluded any emissions related to marketed energy products refined from third-party sourced crude oil, to third-party sourced gas, or to marketed energy products sourced from third parties. As a consequence, BP’s absolute target only guarantees an average cut of 10% of its scope 3 emissions.
7. Net Zero by 2050 Scenario – Data product – IEA
8. Emissions are categorized in three scopes: scope 1, covering emissions directly related to a company’s operations, scope 2, covering emissions indirectly related to company’s operations (for instance, emissions of the electricity emissions Scope 3 emissions is the msot material post for oil and gas companies.
9. This covers life-cycle emissions of all sold products. It covers all scope 1, 2 and 3 emissions related to those products, whether they derive from their own upstream production or from third-party sourcing, and therefore does not carry the aforementioned shortcoming on scope 3 emissions coverage.
10. Our 1.5°C scenario is based on the IEA Net Zero and the IPCC data, which provide CO2 and methane pathways consistent with a 1.5°C global warming. More details on Major Failure – Reclaim Finance
11. Absolute emissions are, for a given year, the product of the company’s carbon intensity of sold energy products multiplied by the total sales of energy products. Would a company increase its sales faster than it reduces its carbon intensity, overall absolute emissions could even increase.
12. BP’s sustainability report 2020
13. Ibid
14. See in-depth analysis conducted by GCI of BP’s announcements
15. Global Oil & Gas Exit List
16. Urgewald analysis of Rystad Energy UCube data.
17. EEB report, Perspective on air emissions of methane and climatic warming
18. BP cost-cutting blamed for ‘avoidable’ Deepwater Horizon oil spill, The Guardian
19. BP’s Net Zero report 2022
20. Producing hydrogen from natural gas requires significant amounts of energy, provided through the burning of gas itself. Moreover, it relies on gas extraction, which still comes with methane leakage, a greenhouse gas 84 times more potent that CO2.
21. Reclaim Finance calculations based on company’s reported data. More details on Major Failure – Reclaim Finance
22. Climate Action 100+ “Net Zero Company Benchmark” for BP PLC

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

On May 12, 88.5% of BP’s shareholders approved the company’s flawed climate strategy. Following underwhelming votes at Repsol (83% support for the company’s climate plan), and Equinor (97.5% support, 81% of non-governmental votes) earlier this month, the poll results from BP’s AGM illustrate the widening chasm between investors’ pro-engagement rhetoric and their actual votes. Most investors continue to rubber stamp weak climate plans, further undermining the credibility of their engagement as shareholders.

An ambitious shareholder resolution filed by Follow This, asking BP to set Paris-aligned climate targets, was also rejected by 85% of shareholders, down from 21% in 2021 to 15% this year. Support for shareholder proposals on climate is dwindling. This negative trend goes to show how investors are instrumentalizing the Ukraine war to justify lower support to climate resolutions in 2022. Recently BlackRock stated that it would not support as many climate resolutions as last year, stating that “the invasion of Ukraine will impact the net zero transition” and “drive a need for companies that invest in […] traditional sources of energy”. More and more asset managers seem ready to backpedal and turn a blind eye to the climate crisis as it risks hurting their short-term financial return. This profit-first approach is in direct contradiction with the position of both energy experts and the international community: the current geopolitical and energy crisis should lead us to wean off fossil fuels faster, not slower.