BRING THE OIL & GAS MAJORS
Financial institutions must exclude companies that are unable or unwilling to transform and align their activities with a 1.5°C trajectory from all financial services.
However, the exclusion is not the solution for all companies whose activities are currently incompatible with the objectives of the Paris Agreement. Financial institutions must engage with their clients and investee companies and push them to exit unsustainable sectors.
Reclaim Finance calls on investors to join collective engagement initiatives such as Climate Action 100+. But their participation must be proactive. It must also complement, not replace the adoption of their own engagement strategies.
Three key principles for a robust engagement
1. Contrary to the idea that only shareholders have the power to influence companies, Reclaim Finance believes that large bondholders, banks and insurers can also influence the behaviour of their clients.
2. The engagement must aim to align corporate activities with the 1.5°C target and bring about immediate gains in reducing greenhouse gas emissions so as to halve global emissions by 2030.
3. The objectives of the engagement must take precedence over personal interests and business contracts between major groups. Today, shareholder climate engagement initiatives are being thwarted because of strong conflicts of interest.
Today, no financial institution has a robust engagement policy that articulates clear and specific demands and deadlines to be met by the oil and gas majors. Financial institutions must adopt and communicate a strategy of intensification which is to be deployed in case the engagement fails or brings insufficient results. Without systematic requests, the door is open to arbitrariness and undue leniency towards certain companies.
Stop ignoring the majors
Financial institutions have adopted policies excluding some fossil fuels from their financial services. However, because of their broad diversification, the oil and gas majors are slipping through the net. This is a problem: preventing the expansion of fossil fuels will not be possible without bringing the oil and gas majors into the net.
50% of the additional production of hydrocarbons from projects planned between 2020 and 2024 comes from just 25 companies. Among them are many majors. According to the Carbon Tracker Initiative, all the oil and gas majors have initiated new projects that are incompatible with the objectives of the Paris Agreement. The French oil and gas major Total continues to invest 18 times more in the exploration and production of fossil fuels than in its so-called “low-carbon sector”. In fact, gas, not renewables, dominates this sector. In addition by 2024, Shell, Chevron, Exxon and BP’s plan to expand more than 50% of their fossil fuels in the highly destructive shale oil and gas sector.
The oil and gas majors are capable of single-handedly defeating the Paris Agreement’s climate targets. This leaves only one option. Financial institutions:
Must suspend all services to the majors as long as they do not stop developing new fossil fuel projects.
Use their rights as shareholders and financial stakeholders to force the majors to adopt absolute GES reduction targets on all their activities (scope 1 to 3) in order to align them with the 1.5°C objective.
Until very recently, no financial institution had publicly challenge Total on climate ground. Yet the French major is far from being exemplary. Total is responsible for 0.91% of cumulative global greenhouse gas emissions between 1965 and 2017, and is among the top 20 contributors to global emissions. Total recently committed to achieve carbon neutrality on its scope 1 & 2 emissions worldwide and on its scope 3 emissions in Europe – scope 3 represents around 90% of Total’s global GES. Moreover, Total rather opts for carbon intensity reduction targets than absolute emissions reduction targets does not aim at net zero emissions in 2050, and its short and medium objectives are miles away from what is needed. Consequently, while Total should immediately start reducing its overall GES emissions, it is still planning many new fossil fuel projects, including in the riskiest sectors.
In April 2020, 11 shareholders finally tackled this issue and co-filed a resolution asking Total to adopt a roadmap with intermediate, medium and long term absolute emissions reduction targets to align with the Paris Agreement. This resolution was supported by 16.8% of the shareholders who voted for or against it. Despite being opposed by 83.2% of the shareholders, this resolution marked an historic turning point in the relationship between Total and its shareholders, in particular the French ones. Shareholders who supported the resolution must maintain the pressure on Total and convince the ones who abstained or voted against to join their initiative.