The oil and gas industry faces a critical challenge as investors, consumers and policymakers increasingly call on companies across all sectors to set net zero targets that cover both direct and indirect emissions. Indirect emissions, known as Scope 3, include those generated through the use of a company’s product — a particular problem for oil and gas companies, whose core business model explicitly rests on selling fuels that, when used, generate greenhouse gas emissions. To play a true role in the transition to a net zero economy, oil and gas companies must urgently set and move toward comprehensive greenhouse gas reduction targets that cover the full lifecycle of their products.
Over the past two years, a growing number of oil and gas companies have touted what they refer to as ‘net zero’ targets. However, these targets have largely only covered Scope 1 and 2 emissions, ignoring Scope 3 entirely. This is particularly problematic in the oil and gas industry, where Scope 3 emissions can be seven to 10 times higher than the operational emissions from Scopes 1 and 2. Asking companies to set more ambitious and comprehensive emissions reduction targets in line with the Climate Action 100+ Net-Zero Company Benchmark has therefore been a key priority for investors.
Climate Action 100+ investors have engaged with Phillips 66 since the initiative’s launch in 2017. At that time, investor signatories CalSTRS and the Presbyterian Church (U.S.A.) had already been involved with Phillips 66 for several years, filing multiple shareholder proposals that called on the company to disclose greenhouse gas emissions and set reduction targets.
Under Climate Action 100+, a larger group of investor signatories escalated pressure on the company, leading to a meeting with members of the board in 2020. At the company’s annual meeting that year, a majority of shareholders voted for a proposal, filed by signatory As You Sow, calling on the company to report on the public health risks of expanding petrochemical operations in areas increasingly prone to climate change-induced storms, flooding and sea level rise.
By 2021, the power of continued investor pressure from within the initiative and beyond it was clear. That year, 80% of investors at Phillips 66’s annual general meeting supported a shareholder proposal from Follow This, which called on the company to set emissions reduction targets that include Scopes 1, 2, and 3. At the same meeting, 64% of investors also voted in support of a CalSTRS/Presbyterian Church shareholder proposal for the company to produce a climate lobbying report. The resounding majority votes sent an unmistakable signal that investor expectations on climate had been irreversibly raised for the oil and gas sector.
Following the 2021 annual meeting votes and further investor engagement around emissions reduction targets, later that year Phillips 66 became the first U.S. refiner and second U.S. oil company to set Scope 3 emissions targets, pledging a 15% reduction in emissions intensity by 2030. It also announced a goal of reducing scope 1 and 2 operational emissions intensity by 30%.
Investors welcomed this commitment from Phillips 66, which set a new precedent, raising the bar for the rest of the industry, particularly in the United States. Investors also supported resolutions calling for Scope 3 reductions at the 2021 annual meetings for Climate Action 100+ focus companies Chevron and ConocoPhillips. Several weeks after Phillips 66 announced its Scope 3 goal, Chevron publicly set a similar, though less ambitious target.
While these commitments are very significant, representing an unprecedented shift for companies that have previously claimed no responsibility for Scope 3 emissions, they still fall far below the level of action needed from the oil and gas industry. The current Phillips 66 target is based on a reduction in emissions intensity rather than absolute emissions. Alone, emissions intensity targets allow companies to meet their stated goals while continuing to increase their fossil fuel footprint, so long as they sufficiently expand clean-energy portions of their operation by comparison.
Investors will continue to engage closely with Phillips 66 to deliver on their commitments and set more ambitious targets for dealing with Scope 3 emissions, as well as increased alignment with the Climate Action 100+ Net-Zero Company Benchmark.
- 2014, 2015, 2016: Climate Action 100+ investor signatories CalSTRS and the Presbyterian Church (U.S.A.) file shareholder resolutions at Phillips 66, calling on the company to disclose greenhouse gas emissions and set reduction targets.
- December 2017: The launch of Climate Action 100+, a larger group of investor signatories, escalates pressure on the company.
- 2020: Climate Action 100+ investor signatories meet with members of the Phillips 66 board.
- May 2020: A shareholder proposal calling on Phillips 66 to report on the public health risks of expanding petrochemical operations in areas increasingly prone to climate change-induced storms, flooding, and sea level rise, from Climate Action 100+ signatory As You Sow, wins a majority vote.
- September 2020: Climate Action 100+ Steering Committee sends letter to Phillips 66, asking for a commitment to disclosures aligned to the Climate Action 100+ Net-Zero Company Benchmark and increased transparency around lobbying disclosure.
- May 2021: 80% of shareholders at Phillips 66 support a Follow This resolution calling for Scope 1, 2, and 3 emission reduction targets.
- May 2021: 64% of shareholders supported a CalSTRS/ Presbyterian Church (U.S.A.) shareholder proposal for the company to produce a climate lobbying report.
- September 2021: Phillips 66 sets a target to reduce its Scope 3 emissions intensity 15% by 2030.