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Targeting Big Oil’s
Scope 3 Emissions

Most oil and gas industry carbon emissions come from the downstream use of their products. U.S. firms have resisted demands to set targets for these emissions. Why is shareholder support for target setting now weakening?


Before they introduce credible targets to reduce greenhouse gas emissions, companies must first measure them. The Greenhouse Gas Protocol, a global accounting standard for carbon emissions, defines three types. Scope 1 emissions are from a company’s owned operations; scope 2 from its energy inputs; and scope 3 from its supply chain and the consumption of its products.


Many oil and gas companies have set targets for scope 1 and 2 emissions. So far, much of the industry has resisted scope 3 targets, which account for 85%-95% of the total. That is not surprising: Setting targets for reducing the consumption of a company’s core product is akin to adopting a strategy for either going out of business or bridging to a new one.


Investors who want to influence corporate emissions policy can practice active ownership by voting on shareholder resolutions that focus on target setting. According to Morningstar Sustainalytics’ proxy data feed, shareholders voted on 28 climate target-related resolutions in 2022, up from seven in 2021 and six in 2020. Eleven of this year’s 28 resolutions targeted energy and oil and gas companies; six of those called for scope 3 targets.


Several of last year’s resolutions attracted strong support: 58% of ConocoPhillips’ shareholders voted in favor of more comprehensive targets in 2021, for example. This year, support among ConocoPhillips’ shareholders declined to 39%. According to Sustainalytics, support for resolutions focused on climate targets declined to 41% in 2022, from 46% in 2021 and 52% in 2020.


BlackRock says it has become less supportive of climate-target proposals because they have become more prescriptive. At the same time, BlackRock notes that the impact of the war in Ukraine on global energy security will “impact the net zero transition that is already underway.” Other investors argue that oil companies cannot measure scope 3 emissions until downstream consumers achieve accurate reporting themselves.
Oil & Gas Industry Emissions

Data Source: Morningstar


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