It seems counter-intuitive to ask an oil company to reduce the greenhouse gas emissions of its customers i.e. reduce the consumption of the very product they sell. Yet, this is exactly what investors are asking Total, Shell, BP…
On April 15th 2020, 11 investors among which Meeschaert AM and Sycomore  filed a resolution to oil company Total upcoming general assembly on May 29th 2020. The group of investors are asking the company to reinforce the contribution of their business model towards reaching the objectives of the Paris Agreement on climate change and account for direct and indirect emissions, mainly generated by their customers.
Climate activism from investors is on the rise. What are their objectives? What to learn from their actions?
Energy that feeds all our economy is key to mitigate climate change
The world economy must be profoundly reshaped to keep the average global temperature increase below 2°C. Climate change is caused by the increased concentration of greenhouse gas in the atmosphère. Reducing its concentration entails decreasing the amount of greenhouse gas (GHG) released into the atmosphere and increasing natural and engineered carbon sinks.
Energy production and consumption is responsible for 75% of global greenhouse gas emissions . Without deep transformations from the energy sector and all energy hungry sectors, there is no chance society as a whole will be able to achieve the Paris climate goals and limit the temperature increase to 2°C above pre-industrial age.
Total is one of the top 10 largest oil and gas corporation in the world. Since 2016, Total has been publishing a yearly climate report on the strategy and implementations of mitigation and adaptation initiatives to climate change . They detail how they integrate climate into their strategy and share their objectives. This appears not to be enough for investors.
Climate change has become a matter of concern for the financial sector
In all industries, organisations face exposure to the effects of climate change. These effects include physical risks (extreme weather, rising sea levels) and transition risks (regulatory changes, carbon taxes, shifts in suppliers’ operations and consumers’ purchasing habits).
Oil and gas are at the front line: stricter climate regulations could hurt the value of coal, oil and gas investments, extreme weather could disrupt their production or demand could shift to lower carbon alternatives.
To protect the value of their portfolio, and to play their part in the fight against climate change, investors are pressuring the energy sector to accelerate their transition towards more sustainable energy sources.
As a result, top oil and gas firms, Shell, BP and Total to name a few have all been subject to climate activism in the past years.
Monitoring and reducing direct GHG emissions are not enough
Total is asked by the 11 investors to take into account not only direct emissions but also indirect ones  in their emission reduction objectives.
Direct greenhouse gas (GHG) emissions (referred to as scope 1 emissions) are emissions from sources that are owned or controlled by the company such as on-site fossil fuel combustion and fleet fuel consumption.
Indirect GHG emissions are emissions that are a consequence of the activities of the company, but occur at sources owned or controlled by another entity upstream or downstream in the value chain (referred to as scope 2 and 3).
Indirect greenhouse gas emissions approximately accounts for 85% of global emissions of Total. They are mainly composed of downstream emissions from the combustion of the oil and gas of their clients or end users.
For any company and not only oil and gas companies, it is not enough to only address direct emissions. Indeed risks and opportunities from climate change can hide in other places:
- In the supply chain: increased cost of raw material and equipments due to stricter environmental regulation
- In the use of the products or services: change in clients behavior, increase cost of energy to use the service, reputation risks
- With employees: staff unrest with the rise in climate change awareness (cf Amazon employees who demonstrated and spoke out about climate change early this year)
- In close-by sectors: opportunity to diversify in other less carbon intensive sectors and innovate with partners
To assess a company’s vulnerability to climate risks let alone its responsibility to the environment, all scopes of emissions have to be monitored and reduced.
Working on climate change mitigation is a way to build a strategy towards a more resilient organization
The challenge for Total is that their business heavily relies on products and services (oil & gas) that release a lot of GHG in their utilisation phase.
Tackling climate change along the entire value chain is no easy task, all the more for oil and gas companies that bear the burden of the energy transition. Because they are the one with the technical expertise, the transition may be an opportunity for them to transform their business before it is too late.
Of course, reducing direct emissions is a good start and a pre-requisite. It increases efficiency of facilities and typically produces immediate cost reduction. However looking beyond direct emissions has the potential to inform a sustainable and resilient strategy for the company and create further value for shareholders and the environment.
Investors want Total to accelerate the development of profitable low carbon energy alternative and carbon neutrality initiatives. The data below taken from IPCC (Intergovernmental Panel on Climate Change ) pictures the carbon intensity of different energy sources. The results are expressed in g CO2eq per kWh of electricity . The electricity from coal and to a lesser extent from gas shows the largest emissions.
For several years, Total has been investing in alternatives energy and systems to reduce its carbon intensity. This year, they are even proposing a change in the purpose of the company: “activities relating to production and distribution of all forms of energy, including electricity from renewable energy” is positioned first while traditional activity in hydrocarbons is coming second. This is a symbol of a major shift in their strategic focus.
Board members are to endorse more and more responsibilities on environmental and social issues
Total wants to include environmental and social issues in its by-laws during its general assembly. This resolution is the result of the shareholder dialogue initiated by Phitrust, a fund engaged in responsible investing for over 20 years.
If this resolution is voted, it will give a new mission to the members of the board. They will have to take into account environmental and social issues in the implementation of the group’s activity. This reinforce the role of board members along the line of the French “Pacte” law that already provides that companies take into account these issues.
What to expect
Yesterday, Total published a new climate ambition: a net zero target covering production & operational emissions worldwide (scope 1 & 2) & use of its products by customers across Europe (scope 3) . This is the outcome of a collaborative effort between Total and institutional investors among which BNP Paribas AM and EOS at Federated Hermes.
All this investor activism and dialog are hopefully driving transformation towards a more sustainable economy and resilient society. Big oil companies are at the front line of the climate activism. This momentum is bound to extend to other sectors as we move forward with increased awareness on the impact of global warming.
References and notes
 La Banque Postale Asset Management Press Release, April 15th 2020 https://www.labanquepostale-am.fr/media/actualites/cp_depot_de_resolution_total_final.pdf
 Shift Data Portal https://theshiftdataportal.org/
 Total 2016 Climate Report https://www.total.com/sites/g/files/nytnzq111/files/atoms/files/rapport_climat_2016_en.pdf
 IPCC Technology-specific Cost and Performance Parameters 2014 https://www.ipcc.ch/site/assets/uploads/2018/02/ipcc_wg3_ar5_annex-iii.pdf#page=7
 There are different greenhouse gas. The warming power as well as their persistence in the atmosphere are very different. Scientists have defined an equivalent between the different greenhouse gas and CO2. This way, greenhouse gas emissions can be expressed in one common unit, i.e., gramme CO2 equivalent (g CO2e). CO2 has been chosen as it represents three quarters of total greenhouse gas emissions released in the atmosphere each year.
 If like me you work on a laptop, 1 kWh is the energy you need to keep it running for a day.
 Total adopts a new climate ambition to get to net zero by 2050 https://www.total.com/media/news/total-adopts-new-climate-ambition-get-net-zero-2050