By Rebecca Elliott and Bradley Olson
As global leaders prepare to debate action on climate change at
the United Nations on Monday, big oil companies are aiming to show
investors and government officials that they are part of the
solution to a problem they helped cause.
Companies such as Exxon Mobil Corp., Royal Dutch Shell PLC, BP
PLC and Chevron Corp. disagree on how to do so, but they have to
try: Their shareholders are demanding it.
Fossil-fuel companies are falling out of favor with investors
over underwhelming returns and fears that their long-term prospects
are uncertain. Electric vehicles and renewable energy are gaining
traction as governments adopt tougher regulations on greenhouse-gas
emissions to address a warming planet.
The oil and gas sector now makes up just 4% of the S&P 500
index, down from 10% a decade ago, FactSet data show. Exxon
recently fell out of the S&P 500's top 10 companies for the
first time in years.
World leaders will convene at the U.N. on Monday to chart their
paths to meeting the goals of the 2015 Paris accord, which seeks to
limit global temperature increases to "well below" 2 degrees
Celsius. But much of the action is expected to happen on the
sidelines and at events hosted throughout the week by industry and
investor groups, where oil-and-gas companies--more engaged on
climate issues than in the past--will make the case that they
remain sound investments.
"One of the top risks today is climate change," said Michael
Rubio, Chevron's general manager over environmental, social and
governance issues. "Engagements have increased, and investors are
expecting us to voluntarily disclose how we're managing the
climate-related risks and opportunities."
The world's largest oil-and-gas producers are in general
agreement on reducing greenhouse-gas emissions from their drilling
sites, pipelines and other operations. The companies have set
targets to curb releases of methane, a potent greenhouse gas, for
example. They have also discussed new initiatives tied to removing
carbon dioxide from the atmosphere and reducing emissions from
industries such as shipping, according to people familiar with the
matter.
But there is friction among some of the companies over whether
to commit to reducing greenhouse-gas emissions from the oil
byproducts they sell, such as gasoline. These releases constitute
roughly 88% of major oil-and-gas companies' greenhouse-gas
footprint, according to estimates from Redburn, a London-based
research firm.
Shell was among the first of the major oil companies to agree to
cut those emissions, a decision that initially angered some members
of the Oil and Gas Climate Initiative, an industry consortium. The
dispute grew heated in meetings among the companies last year,
according to people familiar with the matter. Companies including
Total SA and Repsol SA also have set targets to reduce the carbon
intensity of their products.
Companies that have pushed back argue that it would be
difficult, if not impossible, for oil companies to realistically
control such goals since, for example, a gallon of gasoline sold to
a Toyota Prius driver would create less emissions than a gallon
sold to an SUV owner, according to one executive. Exxon, Chevron
and BP are among those whose executives are concerned about setting
such emission goals, the people said.
Beyond that, some executives believe it is impossible for an
oil-and-gas company that is seeking to increase production to live
up to any agreement to cut those sources of greenhouse gases, known
among the companies as scope 3 emissions.
"The most effective way to get at scope 3 emissions is through
the role of government," Mr. Rubio of Chevron said, referring to
measures to reduce greenhouse-gas discharges by putting a price on
them.
U.N. Secretary-General António Guterres has pushed for similar
steps. "If we want to have the markets reflecting the reality, we
need to have a price on carbon," he told reporters Friday.
Environmental, social and governance concerns, long the province
of a small cohort of impact investors, have gained more mainstream
momentum in recent years. Asset managers that once evaluated
environmental or sustainability issues separately from typical
financial analysis are now incorporating those factors into their
assessments of energy companies' future prospects, said Jonathan
Waghorn, a portfolio manager for Guinness Asset Management Ltd.
"I really think it's just shifted in the last year," said Dirk
Cockrum, a vice president overseeing sustainability efforts at
Houston-based pipeline company Kinder Morgan Inc. Nearly all of
Kinder Morgan's largest shareholders ask about the company's
performance in environmental, social and governance areas, or what
is known as ESG, he said, and the company faces a deluge of
requests from firms that generate sustainability scorecards.
"The amount of investors who are looking closely at these issues
is growing and is becoming significant," said Osmar Abib, chairman
of global energy at Credit Suisse Group AG. "It's something
oil-and-gas companies need to take seriously, and they are."
Climate activism is also bringing change to the banking
industry. Some banks, such as Toronto-Dominion Bank, have faced a
backlash for helping finance energy projects such as the Dakota
Access Pipeline. Some bank executives are in discussions with
oil-industry officials to create new standards requiring energy
borrowers to detail climate risks in loans, according to people
familiar with the matter.
"The societal pressures are only going to increase," Susan Dio,
BP's top U.S. executive, said at a natural-gas conference last
week.
Write to Rebecca Elliott at rebecca.elliott@wsj.com and Bradley
Olson at Bradley.Olson@wsj.com
(END) Dow Jones Newswires
September 22, 2019 05:44 ET (09:44 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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