REPORT: As oil giants pursue climate goals, data shows their polluting assets are being sold for billions to less austere operators

REPORT: As oil giants pursue local weather objectives, information exhibits their polluting belongings are being offered for billions to much less austere operators

(Austin, TX) A brand new report launched immediately by the Environmental Protection Fund tracks tens of hundreds of oil and fuel wells and different services as they shifted from publicly traded firms to non-public firms, and from operators with local weather commitments to firms with out. dramatic will increase in emissions that adopted.

“By these transactions, it may possibly seem that sellers have lowered emissions, when in truth air pollution is solely shifting to firms with decrease requirements,” mentioned Andrew Baxter, director of vitality transition at EDF. “Whatever the intent of the sellers, the result’s that hundreds of thousands of tons of emissions successfully disappear from the general public eye, most likely eternally. And as these wells and different belongings age underneath lowered surveillance, the environmental challenges solely get larger.”

Such offers are rising in each quantity and dimension, reaching $192 billion in 2021 alone. Utilizing trade and monetary information on 3,000 main transactions over the previous 5 years, EDF analysts recognized lots of of instances the place upstream belongings owned by main world producers have made public commitments to scale back, cease, and flake methane emissions. to enhance transparency, have been offered to new, usually obscure, operators with out such obligations.

A rising variety of traders and different stakeholders are involved in regards to the lack of the power to evaluate enterprise danger or maintain operators accountable for emissions obligations. The report additionally suggests there might be implications for financiers themselves, noting that as of 2017, 5 of the six largest U.S. banks — all of that are members of the Internet Zero Banking Alliance — suggested on upstream offers totaling $566 billion.

“Local weather danger is enterprise danger. Making certain correct environmental asset administration is essential for the oil and fuel trade to take care of its social license to function within the face of an vitality transition to a low-carbon financial system,” Chris James, Government Chairman of Engine No.1, the funding fund that features three administrators on Exxon Mobil’s board of administrators with the purpose of encouraging the corporate to scale back its emissions. “Mergers and acquisitions will eternally stay a core a part of the trade, and a powerful concentrate on environmental efficiency, no matter proprietor, is one thing all events ought to embrace.”

The authors used M&A knowledge from Refinitiv to trace upstream oil and fuel transactions from January 2017 to December 2021, working with oil and fuel analytics companies Capterio and ESG Dynamics to trace adjustments in local weather efficiency after a pattern of the transactions. Measured by key local weather statistics, EDF analysts discovered:

  • 298 offers price $144.9 billion have transferred belongings from firms with escalating liabilities to firms with out.
  • 211 offers totaling $115.6 billion have moved belongings from firms with methane emissions targets to firms that don’t have any targets.
  • 155 offers price $86.4 billion have taken belongings away from firms publicly aligned with net-zero emissions targets.
  • 150 offers totaling $76.8 billion have shifted belongings from members of the trade’s Oil & Gasoline Methane Partnership to non-members.

The report argues that oil and fuel firms, non-public consumers, traders and banks must be inspired to incorporate local weather safeguards within the phrases of those offers to make sure continued stewardship after mergers and acquisitions.

“Oil and fuel firms can not promote themselves out of duty for the local weather. Shareholders want firms to considerably cut back emissions in an actual approach,” mentioned EDF’s Baxter. “Enterprise-as-usual is pushing us in the direction of disaster. A internet zero financial system requires internet zero mergers and acquisitions with safeguards enforced by banks, companies and traders. Profitable vitality calls for brand new fashions of oil and fuel deal-making that take environmental influence into consideration.”

What different traders are saying in regards to the new evaluation:

“What the markets want to grasp as a part of these transactions is whether or not the brand new homeowners are establishing the governance wanted for local weather administration according to a internet zero future. GFANZ helps efforts to fund emissions reductions throughout the financial system, not simply switch emissions. pushed by divestments alone This report supplies perception into this problem with modern concepts to resolve it.”

— Mary Schapiro, Vice Chair, Glasgow Monetary Alliance for Internet Zero

“The evaluation means that mergers and acquisitions in oil and fuel result in elevated emissions that gradual the vitality transition. Institutional traders dedicated to reaching internet zero of their portfolios (and in the actual world) will wish to scrutinize these findings. Encouraging good stewardship and shutting this loophole could finally require higher disclosures from shopping for, promoting and financing events.”

— Dan Gardiner, transition plan specialist at Institutional Buyers Group on Local weather Change.

“Local weather vitality firms have a duty to make sure that after they promote belongings, their environmental obligations are met by the brand new homeowners. Ample and constant disclosure can be key to making sure asset points are managed after a sale.”

— Patrick O’Connell, Senior Vice President & Director of Mounted Revenue Accountable Investing Analysis, AllianceBernstein

“As asset gross sales are a key strategic element within the path to net-zero for public oil and fuel firms, traders would profit from a larger diploma of disclosure in regards to the utility of accountable divestment requirements within the gross sales course of. Whereas noting the inherent challenges within the decarbonisation efforts of this sector, we strongly consider that the introduction of such requirements is crucial to make sure that the potential unfavorable impacts on local weather change are correctly managed and accounted for.”

— Dror Elkayam, CFA, ESG Analyst, Authorized & Common Funding Administration

“As oil and fuel firms jettison belongings to fulfill stakeholder expectations, there’s a hazard of larger local weather impacts and total dangers, as consumers usually function with decrease local weather ambition and oversight. Asset sellers should be sure that local weather commitments observe and implement the belongings. It’s essential that trade, monetary establishments and civil society come collectively now to plan and implement significant options.”

— Andrew Logan, senior director, oil and fuel, Ceres

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