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'Totally insincere': Splits emerge over investor response to Total's net zero pledge

While some investors welcomed the latest net zero pledge from a leading oil giant, others believe the announcement was a 'clear attempt to stave off a shareholder rebellion at its AGM.'

Total oil truck

A Total truck on August 11, 2017 in Luxembourg.

A row has erupted over the net zero emissions pledge unveiled this week by oil and gas giant Total, with a number of investors slamming it as "totally insincere" and a calculated attempt to undermine a recent shareholder resolution that contained more ambitious climate-related demands.

This week, the French oil giant committed to reducing its worldwide operational emissions and European energy product use emissions to net zero emissions by mid-century, while also shrinking the average carbon intensity of products by 60 percent in the same time frame.

The move followed similar net zero pledges in recent months from Shell, BP and Repsol and came after a months-long engagement process with institutional investors through global green investor group Climate Action 100+.

The new commitments were warmly welcomed in some quarters, with engagement co-lead BNP Paribas Asset Management touting it as "one of the most significant achievements in the oil and gas industry" to date and Climate Action 100+ deeming it a "welcome commitment."

Investors have secured progress on climate change from leading oil majors that would have been unimaginable only two years ago.
But Total's new pledges were slammed elsewhere, with some campaigners and investors alleging they amounted to a concerted attempt to undermine support for a more progressive shareholder resolution filed (French) April 15.

"Investors should not be fooled by Total's shiny new ambition, which is a clear attempt to stave off a shareholder rebellion at its AGM," said Jeanne Martin, campaign manager at campaign group ShareAction. "We call on investors to support the more ambitious shareholder-led resolution which asks Total to set absolute Scope 1, 2 and 3 targets in line with the Paris climate goals."

The shareholder resolution, filed by an investor group that includes British charity Friends Provident Foundation and accounts for some $810 billion in assets and about 1.35 percent of Total's shareholder capital, called on the oil and gas giant to set absolute emissions targets in line with the Paris Agreement and take account for emissions generated from the use of its fossil fuels in all 130 countries it works in, not just those in Europe.

Investor campaign group ShareAction criticized Total's plans to concentrate its supply chain emissions reduction efforts in Europe, where the EU has announced a net zero by 2050 target, and argued it should show leadership in countries with less climate-friendly policies in place.

"Total's ambition to be a net zero business in regions that have already committed to net zero is totally insincere," Martin argued. "If a country has already committed to net zero emissions, it follows that companies operating within that country will have to bring their own footprint in line with that policy in any event."

Colin Baines, investment engagement manager at Friends Provident Foundation, urged fellow Total investors to still back the resolution his firm co-filed last month. "Investors need to be wise to Total's attempt to undermine support for our resolution at the forthcoming AGM and, if vocal commitments to ESG and addressing climate change are to be believed, they must vote in support and be directed by the climate science," he said.

Total's ambition to be a net zero business in regions that have already committed to net zero is totally insincere.
Baines expressed fears that Total's calculated effort to divide environmentally focused investors was becoming an increasingly common ploy amongst companies facing demanding shareholder resolutions.

BusinessGreen understands there were similar tensions among investors following Barclays' recent unveiling of a net zero strategy, which some believe resulted in a "meaningful shareholder resolution" requiring the rapid phasing out of fossil fuel finance being sidelined by a "light-on-detail net zero target."

Baines said it was disappointing to see investors turn a blind eye to loopholes in the fossil fuel major's plans. "As things stand, Total does not have a transition plan with medium and long-term targets aligned with the Paris climate agreement and covering absolute emissions, as requested by our shareholder resolution," he said. "Whilst progress should be applauded, it is disappointing to see uncritical joint statements from Total and investors that ignore these obvious and significant flaws."

ShareAction and Friends Provident Foundation also blasted Total's decision to maintain a short-term target for reducing carbon intensity by 15 per cent by the end of the decade, despite calls from climate scientists for dramatic action in the next 10 years to keep temperature rises below 1.5 degrees Celsius.

And they questioned Total's decision to rely on intensity targets, not absolute emission reduction targets, throughout its carbon reduction strategy. Critics of intensity targets argue they allow companies to expand fossil fuel businesses, and fail to account for the risk of stranded assets — high-value assets left "stranded" in the event of tougher climate regulations or a drop-in oil prices.

Total has yet to confirm whether the shareholder-led resolution will be on the ballot at its AGM, scheduled for May 29. The oil giant was approached for comment on the claims the new goal was designed to head off the planned shareholder resolution.

In response to the criticism, Climate Action 100+ argued it had secured significant improvements to Total's climate plans, in particular highlighting a fresh commitment from the company that all new oil and gas capital expenditure would be assessed for consistency with the climate goals of the Paris Agreement.

Stephanie Pfeifer, a member of the global Climate Action 100+ Steering Committee and chief executive of the Institutional Investors Group on Climate Change, said: "Total's net zero commitment is a welcome outcome of constructive engagement with investors. A very important element of the joint agreement is that the company will now need to set out how capital expenditure decisions at a project level are consistent with the goals of the Paris Agreement. Investors will continue work with the company to ensure it delivers on its net zero ambition and that it builds on the commitments announced (Tuesday)."

ShareAction conceded that the new capital expenditure promise was "encouraging" but questioned why the commitment did not cover investments that already have been greenlit, pointing to figures from think tank Carbon Tracker that show that as much as 40 percent of Total's capital expenditure for the period up to 2030 is not compliant with a scenario where temperature increases are kept "well below" 2 degrees Celsius.

But some investors maintain the wave of net zero pledges secured from European oil majors provides evidence engagement strategies are working effectively, while stressing that pressure will continue to be applied to ensure companies deliver on their new goals.

Acting on climate change and contributing to the energy transition remain just as imperative in the wake of the coronavirus pandemic, and investors will expect to see continued progress.
"Investors have secured progress on climate change from leading oil majors that would have been unimaginable only two years ago," Pfeifer said in a separate statement Tuesday. "There is still much more to be achieved, but with Europe's oil majors now working to net zero ambitions, a new standard has been set for the rest of the sector. Acting on climate change and contributing to the energy transition remain just as imperative in the wake of the coronavirus pandemic, and investors will expect to see continued progress."

Commenting on Total's announcement, Chris Mason, head of responsible investment at the Church of England Commissioners for England, suggested that the approach in Europe contrasted favorably with the U.S., noting how leading asset managers were critical in clinching net zero commitments from European oil and gas firms — in Total's instance, BNP Paribas — but "sadly, there are no leading asset managers really pushing Exxon Mobil."

However, the debate over how investors can best apply pressure to secure credible climate policies from carbon intensive firms looks set to run and run. On a related front, a number of big investors, including Comgest and Aviva Investors, this week have slammed the EU's omission of oil and gas from its definition of fossil fuels in draft proposals for its sustainable disclosure regime, according to a report in the Financial Times.

In its draft proposals, the European Securities and Markets Authority has defined fossil fuels as only applying to "solid" energy sources such as coal and lignite, meaning that investors would have to follow tougher disclosure requirements for investments in coal producers than oil and gas companies.

Critics say that the proposals would water down existing sustainable disclosure rules, undermine the EU's ambition to become a sustainable finance leader and mislead investors by confusing their understanding of their holdings' ESG risks and exposure to fossil fuels.

This article originally appeared on BusinessGreen.

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