• From fossil to future. The oil & gas (O&G) industry is at a crossroads, with an urgent need to expedite its journey in the energy transition to combat climate change – since current engagement levels remain minimal. In this report, we revisit our ESG scoring methodology, and put an even greater emphasis on climate change matters under the “E” pillar. We pared down the ESG scores of eight out of the 17 stocks under our coverage, while that of three stocks – Wasco and Bumi Armada in Malaysia, Perushaan Gas Negara (PGAS) in Indonesia – were increased slightly, largely due to improvements in their disclosures and their better performance in reducing emissions.

• Emissions reduction journey. Overall, we see similar global trends in sustainability strategies in various regions. Any slight difference is often due to government policies, cultural values and economic conditions. European oil companies have often been at the forefront of sustainability initiatives while O&G companies in the Asia-Pacific generally have demonstrated lower emissions reduction in the past five years. Closer to home, Petronas and PTT managed to reduce 9-13% of their greenhouse gas (GHG) emissions over the same period. However, Pertamina’sGHGemissions increased by almost 50%, mainly due to a ramp-up in upstream production.

• Greater efforts needed. According to the International Energy Agency’s (IEA) report titled The Oil and Gas Industry in Net Zero Transitions published last year, O&G producers accounted for only 1% of total clean energy investments globally in 2023. More shockingly, >60% of such spending came from just four companies – Equinor, TotalEnergies, Shell and BP – out of the hefty total of O&G companies globally. While clean energy investments only accounted for only 3% of total spending in the O&G industry in 2023 as quoted by IEA, we have seen some big corporations committing to spend 15- 25% of their budgets in this area. These figures may extend beyond 30% in the longer run.

• Revisions to our “E” scoresheets. We revisit our ESG scoring methodology, and now put an even greater emphasis on climate change matters under the Environmental (“E”) pillar. We lifted our weightage of climate change from one-third to 60% of total “E” scores, by evaluating the companies’ emissions reduction strategies, disclosures and carbon intensity reduction performance, as well as efforts in expanding or diversifying into low-carbon businesses. We discovered that the companies we cover in Thailand generally have better sustainability disclosures compared against their Malaysia and Indonesia companies. Following that, we marked down the ESG scores for eight out of 17 stocks under our coverage. At the same time, we slightly upgraded the ESG scores for Wasco and Bumi Armada, as well as PGAS.

Source: RHB Securities Research - 18 Nov 2024