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WEO stated policy WEO SDS 2040 2030
13.
Climate.
The World Bank has estimated that the amount of gas burnt annually in connection with oil extraction corresponds to the annual electricity consumption in Africa.
Activities their business model so that it becomes sustainable in the long term. Moreover, these companies must be influenced to reduce the CO2 emissions from the extraction of fossil fuels.
If you look at the CO2 footprint of oil, it can be broken down equally between indirect emissions from extraction, transport and refining of the oil and the direct emissions from the end users (companies and private individuals).
Depending on oil type and production method, the CO2 footprint of the indirect emissions may vary considerably from 15% and, for some oil types, up to about 40% of the oil’s overall CO2 footprint.
Oil is a ‘commodity’ where the individual end user has extreme difficulty making requirements for where the oil should be extracted and how it should be processed.
Conversely, investors that invest in the companies that extract the oil have a natural interest in the oil companies taking the work to reduce CO2 emissions from their production seriously. As more and more countries adopt legislation to meet their obligations under the Paris Agreement, the oil companies that are not d...
That is why ATP chose to focus on CO2 emissions from oil extraction in 2019. We did so on the basis of a study by Stanford researcher Masnadi, which estimates the carbon intensity of oil production in the oil-producing countries. Countries like Algeria and Canada are high on the list due to burning of natural gas and o...
The study estimates that the world can avoid up to 18 gigatonnes of CO2 emissions by avoiding ‘flaring’ (the burning of natural gas at the well) and by not extracting the most resource-intensive oil reserves like oil sands.
0 5
10 15 20 25 30 35.
Denmark Saudi Arabia Norway Qatar Kuwait UAE Angola UK.
Russia Australia.
Mexico Brazil Egypt Libya USA Oman Nigeria Malaysia Iraq Iran Canada Venezuela Algeria.
Indirect CO2 emissions (gCO2eq/MJ) from the production of oil – selected countries.
Average carbon intensity
14.
Climate.
Dialogue with oil companies on extraction methods and transparency.
Activities.
Based on the Stanford study on CO2 emissions of oil extraction, we have made an analysis of 257 oil companies that jointly account for more than 82% of the world’s total oil production. The analysis has been made to assess the carbon intensity of the individual companies’ oil production. ATP only have ownership interes...
Based on data broken down by country that show where the individual oil companies produce or have ownership interests, we have applied data from the Stanford study to estimate the carbon intensity of extraction and production for each company. Each company has been given a weighted score for its estimated carbon intens...
Companies with no diversification but with a strong exposure to individual countries with a high carbon intensity will be revealed by our analysis, since the company’s estimated carbon intensity will equal that of the individual country. This applies primarily to Canadian producers of oil sands, which is a particularly...
Against this background, we have made an investment choice of not investing in companies with an estimated high carbon intensity, since we do not believe that we are being compensated for the inherent risks. This primarily means that we do not invest in companies whose primary business is the extraction of oil sands.
The analysis also shows that a broad range of companies are placed in a large intermediate group where some companies are relatively close to each other. This group is characterised by small companies with exposure to a single country and a group of larger diversified companies that extract oil worldwide. The latter gr...
The last group is characterised by having a low carbon intensity, which reflects that the companies have access to high-quality oil that does not require a particularly complex refining process. That is why this group of companies is presently not part of this specific dialogue, but may be relevant for other types of d...
So far, our dialogue with the intermediate group has focused on the companies being transparent about their use of flaring (burning of natural gas at the well) in connection with oil extraction, since several small oil companies do not publish any figures on flaring. During the dialogue, we identified seven companies s...
One company had erroneously been marked by our data provider and already reported the requested data. ATP received commitment from another of our portfolio companies that they would include the data we requested in their.
ATP IS A CLIMATE PARTNER.
ATP’s CEO, Bo Foged, has been invited to join the Danish government’s climate partnership for the financial sector. Here, ATP will contribute to the work and share our experience on climate in our investments. ATP was also invited to participate in the climate partnership on heavy transport, where we are represented by...
Activities.
DISTRIBUTION OF COMPANIES RELATIVE TO CARBON INTENSITY OF EXTRACTION IN ATP’S INVESTMENT UNIVERSE.
High group Companies that – including a margin of uncertainty in the original Stanford study – have an above-average carbon intensity have been sold off without any dialogue due to risk concerns. This meant that, in 2019, four companies were removed from our investment universe (as at November 2019).
Intermediate group.
The intermediate group is composed of 28 companies, of which ATP owns eight. ATP has chosen to enter into a dialogue with the companies about their carbon intensity. Initially, we have started a dialogue with seven companies about their transparency about their use of flaring of natural gas in connection with oil extra...
Low group The 12 companies with a carbon intensity that is significantly below average are presently not in scope for this analysis. Several of the companies are part of the dialogue with Climate Action 100+, of which ATP is a member.
In the statement, we have used data from a leading provider of data on the oil and gas industry to ensure that the estimate reflects the actual oil production as best as possible. Similarly, we have looked at the margin of uncertainty in the Stanford study, so that we consider any uncertainties in respect of the indivi...
next report. We remain in a dialogue with two of the portfolio companies, hoping to gain greater clarity about when we can expect them to report the relevant data.
We did not succeed in establishing a dialogue with the remaining three portfolio companies, despite repeated attempts at contacting them. We therefore had to assume that the lack of response and data transparency is due to the compa- nies’ unwillingness to engage in a dialogue about the carbon intensity of their oil pr...
During 2020, we intend to continue the analysis of and the dialogue with the remaining companies in the intermediate group.
16.
Climate.
International investors in dialogue with the world’s biggest CO2 polluters.
Activities.
Over the past years, the global investor initiative Climate Action 100+ has put climate change on the agenda in many of the world’s biggest listed companies.
ATP has been part of Climate Action 100+ since the initiative started, and since then it has grown to 373 investors from all over the world and manages a total of USD 35 billion.
The great support behind the initiative means that a number of results have been achieved across sectors.
ATP does not participate directly in all the dialogues, nor do we have ownership interest in all the companies, but we do participate in select dialogues and have stated our intention to support the overall purpose of the initiative.
Climate Action 100+ has achieved commitments from some of the world’s largest CO2 polluters to prepare strategies that focus on climate, make targets for carbon neutrality, etc.
One of the strengths of the initiative is that it focuses both on the biggest players on the supply side in the form of the largest oil, gas and coal companies but also engages in a dialogue with the companies that demand fossil fuels. In that way, the initiative gets all the way round the green transition.
In autumn 2019, Climate Action 100+ published some of its results of the dialogue with the 161 companies which make up the target group. There is still a long way to go, but the results show that cooperation can lead to results.
In ATP’s report on stewardship, we report on or approach to climate- related proposals at general meetings.
ATP’S USE OF CRUDE OIL FUTURES.
When investing in assets, ATP must strive to maintain their real value. This is achieved by placing some of the investments in assets that are expected to increase in value in case of rapidly increasing inflation.
To this end, ATP uses a variety of investment assets and risk management instruments, including crude oil futures. In our view, a portfolio that includes crude oil futures is better able to maintain its real value than a portfolio without crude oil futures. This is because inflation is measured as price changes on a re...
When we invest in crude oil futures, the investment is always settled in cash before the future expires. ATP does not take delivery of the crude oil and therefore does not obtain physical ownership of the crude oil, nor does ATP consume oil through its use of crude oil futures. We only trade in futures with financial i...
In step with the green transition, which seeks to lessen the dependence of the world economy on fossil energy and thus its relevance, we regularly evaluate whether other instruments will be better suited to maintain the real value of the portfolio.
Climate Action 100+ has published a status report that tells about the progress made so far by the initiative.
70% of the companies have set out long-term emission reduction targets. Of these, 9% have made reduction targets that are in line with the goals of the Paris Agreement. 40% of the companies have undertaken climate scenario analyses, and 30% have formally supported the TCFD recommendations. 77% of the companies have boa...
Royal Dutch Shell, one of the six largest oil and gas companies in the world which has publicly declared its commitment to assuming a leading role in terms of climate obligations in the industry. This also includes reduction targets for scope-3 emissions, i.e. the CO2 emission caused by the use of Shell’s products.
Glencore, the world’s largest exporter of thermal coal, has agreed a cap on coal production corresponding to the current level of 145 million tonnes per year.
Mærsk, the world’s largest shipping company, has committed to a net CO2 emission of zero in 2050.
Rio Tinto has turned its back on coal winning and published a TCFD report in which they commit to reviewing their assets in order to define CO2 reduction targets.
Nestlé has committed to zero net emission by 2050. The zero net emission includes scope-3 emissions.
Volkswagen has committed to being climate neutral by 2050 and to launching just short of 70 different electrical cars by 2028.
AES Corporation has made three different scenario analyses and committed to a 70% reduction in carbon intensity by 2030.
Duke Energy Corporation has published an update of its CO2 transition plan with a reduction of 50% in greenhouse gas emissions by 2030 and a net emission of zero by 2050.
PetroChina has developed a climate strategy and signalled that the company wants a climate strategy that meets the goals of the Paris Agreement.
CLIMATE ACTION 100+ STATUS REPORT.
Activities
18.
Climate.
Focus on the development in energy consumption in various climate scenarios.
Activities.
One of the basic reasonings of TCFD is that, as an investor, you must work with scenario analyses of various degrees of how climate change affects your portfolio, including a Paris scenario of 2 degrees Celsius or less.
Since 2017, ATP has been working with TCFD’s recommendations, including climate scenarios. Scenario analyses are wellknown for a pension company like ATP, as they are a part of our financial risk management. That is why we also consider climate scenarios as a natural element in the management of climate risks. For inst...
However, we have learned three lessons in the use of climate scenarios in financial analysis.
1. Financial risk analyses are conventionally based on retrospective data and historical events, where history is used to understand future risks. Climate risks will manifest themselves in the future, meaning that data is limited and knowledge is lacking about the actual effects of climate change on investment assets.
2. Our scenario analysis of forestry assets showed that it is possible to create an understanding of first-order impacts on an asset, such as how temperature increases will affect a forest, but that predicting second-order impacts is complex, i.e. how other similar assets will develop and how other market players will ...
3. ATP has tested various external scenario tools from different providers. Our experience so far is that the tools have yet to perform at a level where they can be meaningfully included in actual investment decisions. The reason for this is that the tools are based on a number of assumptions about the future developme...
A common feature of the various climate scenario analyses is that they, to a significant extent, implicitly or explicitly, draw on the overall energy and climate analyses made primarily by the United Nations Intergovernmental Panel on Climate Change, IPCC, and the International Energy Agency, IEA.
SCENARIO ANALYSIS: PACTA.
Several organisations have chosen to launch different online-based tools that allow investors to carry out climate scenario analyses. ATP is of the opinion that the analyses can be useful for when investors need to assess the robustness of their strategic plans. Scenario analyses can be based on a series of different a...
Unfortunately, ATP’s overall experience is that several online-based tools to some extent are non-transparent when it comes to the specific selection of method, which makes it difficult to determine how we can use the information in our ongoing portfolio management.
Despite these reservations, we have chosen to publish a PACTA analysis, since some of our stakeholders expect us to publish such an analysis. In our view, PACTA comes with some methodological challenges that we have described in our report on responsibility for 2018. The PACTA analysis for 2019 is available on ATP’s we...