Tough climate transition path. Should you hold these FTSE 100 oil stocks?

Highlights

• Investor group Institutional Investors Group on Climate Change (IIGC) laid out a set of new standards for major oil companies to follow as part of their transition towards decarbonisation
• The IIGC is a group of investors holding a combined AUM of over US$ trillion.

A coalition of 10 investor groups has laid out a climate transition pathway for Big oil, including majors such as Royal Dutch Shell (LON: RDSA), BP (LON: BP.), France’s Total and others in a Net Zero Standard for Oil and Gas report published today.

Global oil giants are facing a tough road ahead to tackle the climate emergency, thus the investor group, Institutional Investors Group on Climate Change (IIGC) set out a blueprint of about 10 standards in corporate reporting, and achieving investor requirements to help investors compare energy companies’ decarbonisation strategies.

The coalition of investors have a combined total of US$ 10.4 trillion in asset under management (AUM). The unprecedented reporting standard was arrived at following several high-level discussions between investors and global oil giants. 

Spanish oil and petrochemicals giant Repsol, BP, Shell and Total will form the core member group to tackle the path towards achieving net zero carbon emissions by 2050.

FTSE 100 Oil & Gas stocks amid climate transition

Institutional investors, private equity firms, banks and other money managers have increasingly faced pressure to ensure their investments align with the Paris agreement signed in 2015 to limit global heating to 1.5 degree Celsius from pre-industrial levels.

While Shell, BP and others have already announced their climate transition plans, they have not been as aggressive and targeted as having a uniform set of standards in the Net Zero Standard for Oil and Gas can allow oil companies.

The report comes ahead of the COP26 UN climate summit set to be held between 1 to 12 November, hosted by the UK in Glasgow.

Let us look at 2 FTSE 100 oil and gas stocks and see how they reacted to the development:

1. Royal Dutch Shell PLC (LON:RDSA)

Royal Dutch Shell is an oil and gas major and also part of the core group of oil majors working with the IIGC on the new standards.

The company declared its Q2 2021 dividend payments recently, of EUR 0.2024 per share for A shareholders, and it will be paid out in euros.

B class shareholders will be paid out in pounds sterling, at 17.38 pence per share. They were paid out earlier this month, between 1 and 3 September.

(Image Source: Refinitiv)

Royal Dutch Shell’s shares were trading at GBX 1,464.20, up by 0.98 per cent as of 15 September at 10:32 AM GMT+1. The FTSE 100 index, which it is a part of, was trading at 7,038.71, up by 0.07 per cent.

Shell’s market cap was at £59,467.97 million and its one-year return is at 37.59 per cent as of 15 September.

2. BP PLC (LON:BP)

BP is another UK based oil and gas giant. The company reported its interim Q2 2021 dividend of US$ 0.0546 per share today.

It will be payable in pounds sterling on 24 September. The dividends will have an exchange rate of £1 equal to US$ 1.38126. BP was the highest riser on the FTSE 100 despite the news.

(Image Source: Refinitiv)

BP’s shares were trading at GBX 305.15, up by 1.72 per cent as of 15 September at 10:35 AM GMT+1. The energy sectoral index was trading at 5,234.08, up by 1.28 per cent.

BP’s market cap was at £60,233.58 million and its one-year return is at 18.54 per cent as of 15 September.

Bottom Line

Despite making net zero goals, most oil majors have been lagging in their efforts in their move towards decarbonisation. This report will bring in a much needed standardised method of tracking a company’s UN backed climate transition efforts and help climate conscious investment to flow into the sector.

This will also force oil companies that have yet not made aggressive climate targets to adhere to the new standards.