Climate Targets in the Oil and Gas Sector

The sector underpins much of the global economy, powering transport, heating, and manufacturing, yet it produces some of the highest emissions. Targets cannot focus solely on supply; they must align with falling demand, driven by renewable energy deployment and energy efficiency. Recent geopolitical shocks have added energy security considerations, complicating the pace of transition. 

Financiers must also navigate “financed emissions”, the emissions linked to companies they lend to or invest in, while recognising that transition risks vary widely across firms depending on costs, adaptability, and strategies.

The industry is divided into upstream exploration and production, midstream transport, and downstream refining. Each stage produces emissions differently and therefore requires distinct strategies. Upstream emissions arise in extraction but are dominated by downstream scope 3 emissions when fuels are burned. Refineries, meanwhile, can pivot towards renewable feedstocks, shifting product mixes as demand evolves. Financial institutions can address these differences by setting separate targets for upstream and downstream exposures, recognising that a one-size-fits-all approach misses critical distinctions.

For exploration and production, Danske Bank has committed to a 50% reduction in financed emissions by 2030 across scopes 1, 2, and 3, relative to 2020. Progress has already been significant, with financed emissions falling by 73% since 2020, driven by exiting relationships with firms lacking credible transition plans and introducing a strict “no-expansion” policy on new oil and gas fields. For refining, Danske Bank set dual 25% targets: an absolute reduction for scope 1 and 2 emissions, and an intensity-based reduction for scope 3 emissions, measured per unit of energy. This nuanced approach reflects the different transition opportunities in refining.

Companies increasing fossil fuel output risk creating stranded assets as demand falls, jeopardising long-term profitability. For financiers, this poses credit, refinancing, and portfolio risks. By restricting financing to companies without credible transition strategies, banks reduce both climate and financial exposure. Beyond risk avoidance, financial institutions also have a role in enabling solutions: reallocating capital towards renewables, efficiency technologies, and low-carbon fuels. This dual approach, phasing out high-risk, high-carbon exposures while accelerating clean investments, is essential to aligning portfolios with net-zero goals and safeguarding financial stability.