By Joe Brooks, Project Officer, ShareAction
In April 2020, a coalition of 11 institutional investors representing more than 750 billion euros in assets under management and approximately 1.35 per cent of Total’s shareholder capital filed a shareholder resolution at Total. The resolution requests that Total’s management report includes information on the company’s strategy to align its activities with the objectives of the Paris Agreement, and in particular its articles 2.1 (a) and 4.1, and that it sets medium- and long-term absolute emissions reduction targets in line with the Paris goals, and covering Scope 1, 2 and 3 emissions.
In response, Total has today published a joint statement with Climate Action 100+ announcing a new climate ambition. The key points are:
- Net zero across Total’s worldwide operations by 2050 or sooner (scope 1+2);
- Net zero across all its production and energy products used by its customers in Europe by 2050 or sooner (scope 1+2+3);
- 60 per cent or more reduction in the average carbon intensity of energy products used worldwide by Total customers by 2050 (less than 27.5 gCO2/MJ) – with intermediate steps of 15 per cent by 2030 and 35 per cent by 2040 (scope 1+2+3).
The commentary below outlines why Total’s new climate strategy falls short of the ambition required by oil and gas companies to meet the Paris goal of limiting global warming to 1.5C.
Total’s net-zero ambition for scope 3 emissions only applies to countries that have themselves committed to net zero by 2050
While Total’s net-zero by 2050 ambition may look progressive at face value, it only applies to energy products used by its customers (scope 3) in regions in which governments have already committed to implement policies and regulations aiming at net zero. Total’s statement outlines that this ambition currently only applies to “Europe”, or more specifically to the EU, UK and Norway. Given that these countries have already committed to net zero by 2050, Total is simply committing to following national legislations. This is the bare minimum that one should expect from Total. If a country has committed to net zero emissions, it follows that companies operating within that country will have to bring its own footprint in line with that policy in any event.
Total is an international oil major with business interests in more than 130 countries. If Total wants to be considered a leader, it needs to expand its ambition to countries that have not yet committed to net zero by 2050.
The shareholder resolution on the ballot at the 2020 AGM would set Total out as a climate leader by setting absolute emissions reduction targets on all emissions worldwide, instead of relying on external factors such as the behaviour of governments or consumers.
Total’s carbon intensity ambitions are not progressive enough
Total has announced a new ambition to reduce the carbon intensity of its products worldwide by 60 per cent by 2050, which falls short of the net-zero commitment the world needs to meet the Paris goals.
While the 2030 target has not changed from Total’s previous commitments, the 2040 target is actually less ambitious than the previous ambition to achieve a 25-40 per cent reduction in carbon intensity by the same year. The intermediate targets of 15 per cent by 2030 and 35 per cent by 2040 also seem inconsistent with the need for urgent and immediate action called for by the IPCC Special Report on 1.5C to avert the most catastrophic impacts of climate change.
Total’s ambition for scope 3 reductions also relies on carbon intensity indicators. Absolute emissions targets are preferable to intensity targets for three main reasons:
- Intensity targets can allow companies to grow their fossil fuel businesses as long as investments in lower carbon assets are made at a faster rate, i.e. offsetting investments in brown by investing in green. This could lead to a company’s emissions rising in absolute terms, even though its carbon intensity is reduced.
- Intensity targets do not preclude investments in specific fossil fuel projects, and thus fail to account for the risk of stranded assets. In the event of tougher climate regulations or a drop in oil demand, there is a risk that these high-value assets are no longer able to make an economic return and are left “stranded”.
- Intensity targets do not allow fossil fuel companies to go through a “managed decline”, because whilst these companies would be winding down their operations (and thus reducing their absolute emissions), their energy mix would remain the same. In other words, their energy intensity would remain constant although their absolute emissions would decrease. The UK’s largest asset manager, LGIM, has argued that the oil and gas sector shouldn’t reinvent itself through renewables – and instead follow a strategy of managed decline.
The shareholder resolution on the ballot at the 2020 AGM requests that Total sets absolute emissions reduction targets – rather than carbon intensity – to ensure that the company cannot claim to meet its climate commitments while simultaneously scaling up fossil fuel production unsustainably, locking in oil and gas infrastructure and increasing its emissions in absolute terms. Its supporting statement also calls on Total to put an end to its exploration capex.
Total’s capital expenditure is not consistent with the Paris agreement
In its joint statement, Total misleadingly claims that its current capital expenditure (CAPEX) strategy is consistent with the goals of the Paris agreement.
Analysis by Rystad Energy shows that prior to the crash in oil prices caused by covid-19, Total was set to embark on an aggressive expansion plan in 2020 to meet a production growth target of 5 per cent per year between 2017 and 2022. These plans are at odds with the Carbon Tracker Initiative (CTI) finding that Total must achieve a 35 per cent reduction in fossil fuel production by 2040 compared to 2019 levels to stay within the carbon budget implied by the “Beyond 2 Degrees Scenario” (B2DS) - the International Energy Agency (IEA) scenario closest to a 1.5C pathway. This is equivalent to an annual absolute reduction in emissions of 1.8 per cent.
The company however does commit to assess whether its new material capex investments, including in the exploration, acquisition or development of oil and gas resources and other energy and technologies, are consistent with the Paris climate goals, which is similar to what BP and Equinor have committed to doing. Yet, what will happen to the investments that Total has already made and have been demonstrated to be inconsistent with the Paris climate goals? Indeed, Carbon Tracker found that 30-40 per cent of Total’s capex for both sanctioned and unsanctioned projects for the period 2019-2030 are outside of the IEA’s B2DS.
Total’s joint statement shows that it plans to increase the allocation of CAPEX for low-carbon electricity from 10 per cent to 20 per cent by 2030. Whilst welcome, what matters most to investors should be whether Total continues to invest in fossil fuel projects that are incompatible with the Paris climate goals. However, CTI find that 67 per cent of potential CAPEX on unsanctioned projects over the next decade are considered at risk under the B2DS[vi].
Finally, Total’s current internal carbon price of $40 per tonne for all investment decisions is too weak a proxy to measure the profound impact that the low-carbon transition could have on future demand for oil and gas.
Investors should vote for the shareholder resolution at the 2020 AGM
This analysis has shown that Total’s new net zero ambition still falls short of the urgent action required by oil majors to bring their business models in line with the Paris agreement.
Investors are encouraged to vote FOR the shareholder resolution on the ballot at the 2020 AGM, to align Total’s climate strategy with the Paris goals and ensure that its business model is resilient enough to respond to the market, policy, and technological changes associated with climate change.