Are Gulf oil giants ready to go green?
As European and American oil companies face increased pressure and scrutiny on new climate restrictions, the Gulf has so far been avoided the heat.
ExxonMobil appointed a climate-minded activist investor to its board of directors after investment firm Engine No. 1 called on the American oil and gas giant to overhaul its board with expertise on climate change to drive its industrial transformation. The current business model is exposed to “immense risk” in the global realignment toward cleaner energies, Engine No. 1 said. In Europe, British oil and gas firm BP aims to become an “integrated energy company” and pledged to reduce its oil and gas production by over 40% by 2030.
There has been no such comparable trend in the Gulf. Saudi Aramco, the region’s largest state-owned oil company, did not include emissions from many refineries and petrochemical plants in its self-reported carbon footprint, misleading investors’ climate risk assessments. Aramco is “one of the few large, listed oil companies” that does not disclose Scope 3 emissions — produced when customers use its fuels — which typically account for “more than 80%” of oil companies’ total emissions,” Bloomberg reported. The emission rates make Aramco a world leader in carbon emissions.
Saudi Aramco did not respond to a request for comment..
“I have no regrets; it is a minor factor about how I think about Aramco,” said Saleh Al Omar, a Saudi retail investor who bought shares of Saudi Aramco during its initial public offering in 2019.
He told Al-Monitor carbon disclosures are “really not a factor” for Saudis who invest in the local stock market. Moreover, the government sponsoring the IPO had convinced him that shares would be “protected” from any significant downtrend.
Aramco’s disclosures nonetheless exceed the standards for regional and non-Western producers. “There is way more transparency from Aramco than any of the other oil and gas companies in the Gulf,” Jim Krane, energy fellow at Rice University’s Baker Institute, told Al-Monitor. Oman’s largest oil producer, Petroleum Development Oman, did not respond to a request for comment.
“Saudi oil is cleaner than oil produced in America.”
Saudi Aramco and other Gulf producers are unlikely to face pressure from the US administration for further disclosures despite US President Joe Biden’s pledge to “lead the world to address the climate emergency.”
Indeed, the Saudi oil giant could reply that its oil is “probably the cleanest source of petroleum on earth,” implying that “Saudi oil is cleaner than oil produced in America,” Krane said.
Despite Saudi Aramco having produced 4.38% of the world’s carbon emissions since 1965, drilling a barrel of Saudi oil generates significantly fewer emissions than other producers — half that in the United States — Aramco’s IPO prospectus shows.
“It is not something I would expect the Biden administration to highlight,” Krane said.
A US State Department spokesperson told Al-Monitor the United States is “engaging the rest of the world — bilaterally and multilaterally — to step up climate action” and will therefore also “engage with the Kingdom of Saudi Arabia” on this issue.
Saudi Aramco was added in November 2020 to a list of 167 companies targeted by Climate Action 100+, one of the world’s leading investor groups. It aims to push companies responsible for much of the world’s greenhouse gas emissions to take action on climate change, including emissions cuts and improved climate-related disclosures.
Yet, unlike BP or energy giant Total, neither Saudi Aramco nor other Gulf oil companies have formulated net-zero targets, rather expressing aim to tighten their grip on global demand for oil and petroleum-based products. The crown prince of Abu Dhabi said in 2015 preparations are on to “ensure that our resources remain sustainable until the last drop of oil.”
Environmentalists argue Western oil companies’ net-zero claims — which mean removing the quantities of emissions produced from the atmosphere — are insufficient to limit global warming and fail to address the need to reduce carbon emissions.
The lack of environmental transparency is not limited to Gulf national oil companies. In November 2020, dozens of oil and gas companies committed to reporting more accurately on methane emissions under the European Union-United Nations-led Oil and Gas Methane Partnership, but Russian producers are not involved, nor any national oil companies apart from the United Arab Emirate’s Abu Dhabi National Oil Company.
Population remains “poorly informed” on oil industry’s impact
According to the US Environmental Protection Agency, the oil and gas industry is “the largest industrial source of emissions of volatile organic compounds,” including air toxics, pollutants that are known or suspected to cause cancer or other serious health effects.
The United Nations Environment Programme estimates that air pollution, partly caused by the emissions and activities of oil and gas companies, is the most important environmental health risk of our time, causing one in nine deaths globally.
In the Gulf, although environmental awareness is on the rise, a “significant portion” of the population remains “poorly informed,” read an analysis by BCG, one of the world’s leading management consulting firms. About half of 18- to 24-year-olds said they “had never heard of or were unsure of the meaning of ‘carbon footprint,’” the 2021 BCG study found.
Lack of understanding of climate issues coupled with restrictions over freedom of expression prevents most citizens from questioning the impacts of oil companies on public health.
In China, the world’s largest emitter of greenhouse gases, the government has declared a war on air pollution, yet the green targets of state energy producers lag behind those set by European energy majors despite PetroChina’s target for near-zero emissions by 2050, Reuters reported.
Reason to hope
To highlight the importance of corporate environmental transparency, environmental, social and governance (ESG) investment can play a role. However, “The Middle East is very much behind the curve in terms of ESG investing,” said green finance strategic adviser Jessica Robinson, founder of Moxie Future, a platform that seeks to empower women investors.
An “exceptionally meagre 7% of investors” in the region say they always take ESG factors into consideration in their investments, HSBC reported. Robinson told Al-Monitor that sovereign wealth funds should ultimately be the ones initiating a change in investment philosophy. “They are the one who sits at the top of the investment value chain, so once we get them to engage in the ESG agenda, it has ripple-through effects throughout the system.”
As a sign of goodwill, four of the six founding members of the One Planet Sovereign Wealth Fund Working Group are entities controlled by Gulf states, including Saudi Arabia’s Public Investment Fund. The international coalition of sovereign wealth funds aims to integrate environmental considerations in the management of large, long-term asset pools.
“We’ve got a long way to go but I am hopeful,” Robinson said.
AL-Monitor, by Sebastian Castelier, March 11, 2021