A senior executive at Norway's sovereign wealth fund, which owns a larger share of global stocks than any other investor, says Big Oil's transition strategy isn't holding up as carbon emissions continue to rise.
"The oil and gas industry, as a whole, clearly isn't doing enough to cut emissions," said Carine Smith Ihenacho, chief governance and compliance officer at Norges Bank Investment Management. "Currently, there's a long way to go, as global emissions are still going up."
The criticism comes as some of the world's biggest oil companies double down on their core business and Brent crude inches toward $100 a barrel. Meanwhile, producers attending a recent petroleum summit lashed out at the International Energy Agency for its unequivocal warning that the industry needs to stop developing new oil fields if the planet is to limit global heating to the critical threshold of 1.5 degrees Celsius. Such talk, according to the oil executives present, politicizes the climate debate.
For investors trying to align their portfolios with the goals of the Paris climate agreement, such developments represent a worrying shift in the wrong direction.
"The whole energy system needs to change, with companies taking bigger strides to reduce their use of fossil fuels in favor of renewable-energy sources," Smith Ihenacho said. "At the moment, companies aren't making the transition at a fast enough pace to achieve net zero by 2050."
A number of Wall Street heavyweights, meanwhile, are declaring their unwavering commitment to Big Oil. Speaking Sept. 25 at the American Energy Security Summit in Oklahoma City, Goldman Sachs Group Chief Executive Officer David Solomon defended the need to support fossil fuel companies, dismissing demands from climate activists to restrict their access to finance.
"Traditional energy companies are hugely important to the global economy, they are hugely important to Goldman Sachs," he said. "We are all going to continue to finance traditional companies for a long time."
According to Smith Ihenacho, it's up to the world's largest investors to pressure companies and ensure they have proper transition plans. That applies not just to fossil fuel companies, but across high-carbon industries including cement, steel, chemicals, transportation and construction, she said.
"Let's be clear, the energy transition is about much more than oil and gas," Smith Ihenacho said.
The reality is that just 23% of the companies in which Norway's $1.4 trillion wealth fund invests have credible net zero targets, she said.
The fund held roughly 1% of Exxon Mobil and Chevron at the end of last year, and about 3% of Shell and BP as recently as last month, according to the latest data compiled by Bloomberg.
BP and Shell are among companies that actually have "fairly extensive transition plans, and we are watching to see how the industry follows through on those plans," Smith Ihenacho said.
And divestment isn't on the cards; instead, the goal is to apply pressure from within, she said.
That engagement strategy covers a portfolio comprised of more than 9,000 companies. During the most recent proxy season, Norway's wealth fund backed about 35% of shareholder resolutions, which is a far larger percentage than industry rivals like BlackRock and Vanguard.
Smith Ihenacho said the fund regularly meets with the biggest emitters in its portfolio, which is currently a list that spans about 220 companies. "Investor pressure, consumer pressure and litigation pressure are having some impact, but the climate crisis can't be solved by the business alone," she said.
Norway's wealth fund was created in the 1990s as a vehicle to channel the country's oil and gas riches into international investments, and avoid fanning domestic inflation. The investor has sought to gradually reduce its exposure to the oil and gas industry over the years, initially to offset the dominance of fossil fuels in the national economy and more recently in an effort to align its portfolio with net-zero goals.
The wealth fund recently published an 18-page paper outlining how it expects its portfolio companies to manage the climate transition. It wants firms to disclose how climate risks are impacting their operations, which includes reporting all their greenhouse gas emissions. Companies are also expected to commit to achieving net zero by 2050 or sooner, to set interim emission reduction targets, and produce quantifiable energy transition plans.
