Exxon Mobil, BP PLC (LSE:BP.) and BHP Group Ltd (LSE:BHP, ASX:BHP) are the highest greenhouse gas emitting companies outside of the gulf and Asia, and all are vastly under-reporting the level of their emissions, according to new analysis.
Of the 10 companies with the largest carbon footprints, only Shell PLC (LSE:SHEL, NYSE:SHEL) is over-reporting emissions compared to analysis by MSCI, as most other energy companies are underestimating their Scope 3 emissions.
Scope 1 emissions, which are directly emitted during the business activity of the company’s operations, and Scope 2, emissions from purchased energy, are a mandatory part of reporting for many organisations.
Scope 3 covers all other external and indirect emissions, upstream and downstream, which might occur in a company’s supply chain or in the case of petrochemical companies, from customers burning their oil.
Saudi Aramco, Coal India and PetroChina have the largest carbon dioxide footprint, according to the MSCI Net-Zero Tracker report, followed by Exxon Mobil Corporation (NYSE:XOM), BP, BHP and Shell.
Aramco emitted 2126.19mln tonnes of CO2 in the year to May, based on the sum of reported or estimated Scope 1 and 2 emissions plus Scope 3 emissions estimates, with the latter estimates to stand at around 2044mln tonnes.
Exxon’s reported Scope 3 emissions were 540mln tonnes compared to an MSCI estimate of 668.71mln.
BP’s reported Scope 3 emissions were 327.6mln tonnes compared to an estimate of 647.9mln.
BHP’s reported Scope 3 emissions were 402.5mln tonnes compared to an estimate of 670.82mln.
Shell, on the other hand, reported Scope 3 emissions of 1339.55mln tonnes, compared to an MSCI estimate of 603.6mln tonnes.
Shell reports Scope 3 emissions from the sale of products it produces, including oil, natural gas, liquified natural gas, gas-to-liquids and biofuels, and the emissions of products it sells on behalf of third parties, MSCI noted, while its estimate calculates the company’s Scope 3 emissions based on products the company itself produces.
Aramco, the world’s most valuable company after the surge in oil prices on the back of the invasion of Ukraine, has said it aims to reach net-zero by 2050, but also said it expects its emissions to increase through 2035 as it pumps more oil in response to global demand.
This “underscores the tension between satisfying the urgent demand for energy at the cost of putting more greenhouse gases into the atmosphere and illustrates the challenge for net-zero aligned investors in the near term”, said the authors of the MSCI report.
Rather than pouring money into coal in order to replace the lost energy from banned Russian gas, ramping up investments in renewable energy offers the “lowest-cost path to containing runaway climate change” in the wake of the invasion of Ukraine, MSCI suggested.
If energy companies such as Shell, BP, Exxon and Total reinvested windfall profits in clean energy and energy efficiency, MSCI estimated that the world’s average annual investment in sustainably generated power could grow by as much as 85% to about US$654bn a year.
“Allowing emissions to rise in the short term to replace Russian energy and then scrambling to compensate for those extra emissions later would vastly increase the cost of transitioning to a clean-energy future.”
MSCI also had a suggestion for investors who want to influence the clean energy transition.
Rather than complaining about the likes of Shell, BP and Exxon distributing higher dividends as a result of windfall profits from higher oil prices, these investors can simply invest in these companies and reinvest the returns in renewable energy.
This option could be a backup plan if the other suggested option of urging energy companies to directly reinvest windfall profits into renewable energy does not work.
But with MSCI calculating that listed companies alone on track to make the world 2.9°C warmer, it’s clear that companies and their investors need to do more, having reduced this figure from 3.0% in October.
In terms of disclosing emissions, MSCI praised several companies for improvements in the past year.
SSE PLC (LSE:SSE), L’Oreal and Keurig Dr Pepper Inc are among the most improved listed companies when it comes to reporting greenhouse gas emissions, covering at least 97% of their estimated emissions.
Equally, several companies were named and shamed for under-reporting their carbon emissions.
Seven of the top 10 were China-based, but Warren Buffett’s Berkshire Hathaway Inc (NYSE:BRK.A) was second in the list, and US-based PBF Energy Inc (NYSE:PBF) and Mastec Inc were also named.
Berkshire Hathaway total carbon dioxide emissions were estimated at 146.8mln tonnes.
The Buffett-led colossus has not reported carbon emissions in the aggregate as of May, perhaps as an investment holding company it doesn’t think it needs to, though MSCI noted that at least three of its subsidiaries — Berkshire Hathaway Energy, MidAmerican Energy Company, and Burlington Northern Santa Fe (BNSF) — have reported emissions separately.