Our thinking

Dodgy Dealings

13 May, 2022

An oil company sets a net zero commitment. Good news, right? But what happens to the facilities it already owns that are incompatible with the commitment? Does it leave them dormant? Or does it sell them on?

According to a new piece of analysis by the Environmental Defense Fund, it’s often the latter. As oil and gas companies are pressured to cut emissions, many are selling on their dirtiest assets to other businesses. That’s a problem. The organisations buying these assets are often industry laggards: privately owned companies with little transparency and no climate targets. Away from the eyes of shareholders, emissions from these assets are allowed to increase dramatically.

This unintended consequence is undermining the industry’s attempts to transition away from dirty fuels. So what’s the answer? Just as scope 3 emissions disclosures require companies to share not only their operational emissions, but those of their suppliers, so too should investors require oil and gas companies to disclose the proportion of emissions reduction that has been achieved by transferring assets to other companies. Abdicating responsibility for those assets is not enough. Sellers, and the financial organisations supporting the transactions, need to make sure climate conditions are embedded in deal terms.

Being a progressive company is not just about what appears on your own emissions balance sheet. If oil companies’ net zero targets don’t reduce greenhouse gas emissions in real terms, it’s time to hold them to account.

By Sarah Howden