The oil and gas sector is facing more pressure than ever to act on climate change. In the second of a three-part series, S&P Global Market Intelligence analyzes the integrated oil majors' quarterly investor calls, showing how rhetoric has shifted since the Paris Agreement on climate change was adopted in 2015.

Part one looks at how, despite publicly acknowledging the scale of the challenge, most integrated oil majors continue to pursue their traditional business at all cost. Part three is an exclusive interview with Repsol CEO Josu Jon Imaz, who discusses the company's industry-leading commitment to become a net-zero carbon emitter by 2050.

With concern over global warming intensifying both on the streets and in the boardroom, executives at large oil and gas companies are increasingly talking about how they can make greener investments, manage emissions cuts and otherwise stay relevant.

An analysis of quarterly investor calls shows those issues have risen on the agenda of the five biggest integrated oil majors — Royal Dutch Shell PLC, BP PLC and Total SA in Europe and, to a lesser extent, Exxon Mobil Corp. and Chevron Corp. in the U.S. — since the Paris Agreement on climate change was adopted at the end of 2015.

But a closer look at earnings transcripts reveals that, at a time when investor pressure is increasing at a steady clip, the task of greening their companies still regularly fades into the background.

"It's encouraging to see the trend going up. But, at the same time, it's discouraging to see how little this [still] comes up on most of the quarterly calls," said Andrew Logan, director of oil and gas at Ceres, a network of investors that lobbies companies on climate change.

While the companies have started diversifying into cleaner alternatives, it made up less than 5% of total investment at the biggest oil and gas majors between 2008 and 2018, according to CDP, a nonprofit that works to increase environmental disclosures. Across the industry, the International Energy Agency estimates that spending outside of core activities has so far averaged less than 1%.

That means there is still "a pretty glaring gap" compared to what is needed from the sector to combat climate change, Logan said. "It's not a near-term priority just yet."

Shifting priorities?

Discussion of clean energy and climate change has tended to perk up during full-year results, when executives reflect on the performance of the prior 12 months and address big-picture topics.

France's Total, the most vocal among the group, created its Gas, Renewables and Power segment in early 2016. But mentions only shot up noticeably almost three years later when, in its year-end call for 2018, executives mentioned electricity and power more than 100 times.

The reason was not a renewed focus on green energy, however. Rather, company executives gave analysts a closer look at Total's long-term demand models for gas and electricity — demonstrating how the company could profitably sell gas to be burnt in power plants around the world for decades to come.

BP has provided investors with several deep-dives on its low-carbon strategy in recent years, and has said it will double down on the energy transition under a new CEO, after previously keeping quiet on the subject right until the end of 2017.

Since then, outgoing CEO Bob Dudley has already focused more on the company's green investments, which center on solar, wind and biofuels. At the same time, he has held on tight to BP's traditional business model.

Decarbonization is "not a race to renewables [but] a race to lower greenhouse gas emissions," Dudley said during BP's full-year 2017 call. "And as fast as renewables and clean energy can grow, faster than any fuel in history, the world is going to require gas and oil for some decades to come."

Short-term focus

Shell has been noticeably tight-lipped on issues that stray from its traditional business, especially given its ambition to become the world's largest power company.

The first time electricity cropped up in a major way on one of its investor calls was during the fourth quarter of 2017, when it announced a trio of deals in the sector, including the acquisition of First Utility, a U.K. power provider since re-branded as Shell Energy Ltd.

One year later, mentions spiked during the fourth-quarter call for 2018, the first opportunity for analysts to quiz the company on its new short-term targets to reduce emissions from its products. To reach the Paris Agreement's targets, Shell would have to cut the carbon intensity of its energy roughly in half, CEO Ben van Beurden said.

"I think it's the only thing that will keep us relevant ... as a company throughout this energy transition," he told analysts, highlighting that most of this switch would come through adding renewable power and biofuels, as well as selling more gas and refining less heavy crude oil.

Van Beurden may be forgiven for keeping it short, given that the carbon intensity target sparked only a single question from an analyst. That is a big reason why oil majors are still getting away with so little, critics say.

"What is asked and not asked about on these calls does have the ability to set the agenda for management," Ceres' Logan said, although he cautioned that companies tend to focus more on long-term strategies during full-year calls or capital market days.

"Companies are starting to be more transparent," said Luke Fletcher, an analyst at CDP. "But, actually, it's also about investors not just analyzing the sector on a business-as-usual basis."

Transatlantic divide

While Shell, BP and Total are talking more and more about alternative strategies, such issues get even shorter shrift across the Atlantic. Exxon and Chevron occasionally mention carbon capture technology or talk about buying electricity from wind farms to power their shale drilling operations. Otherwise, climate and renewables do not loom large.

This also reflects different priorities among investors, according to analysts. Although climate-related shareholder resolutions are increasing at U.S. companies, European pension funds and other large investors are ahead of the curve.

Others acknowledge that spending is slowly but surely shifting towards more sustainable businesses — and that this matters far more than paying lip service to lofty climate goals.

"Rhetoric is cheap. That's not really the crux of the matter," said Pavel Molchanov, an analyst at Raymond James. However, compared to 10 years ago, even rhetoric has shifted markedly.

"Nobody talked about it in the oil and gas community," Molchanov said. "Climate was just not remotely on the agenda."