The Energy Transition – One of the Megatrends of Our Generation
Integral to our investment analysis is evaluating not just how a company’s strategy affects earnings, cash flows, and returns but also the change in its CO2 intensity. We do so with our proprietary interactive Emissions Metric Model, which measures the change in CO2 emissions per unit of energy. We are launching our CS Emissions Metric Model.
We use eight levers that affect the CO2 footprint of companies’ operations and emissions from their products. This model allows us to look at any energy company’s portfolio mix and measure the change in CO2 emissions, both in absolute and in intensity terms. We can flex variables to model how any energy company can change its product mix to achieve different decarbonisation outcomes.
Big Energy is part of the climate solution, but there is pressure to accelerate. For the four major energy companies which we have launched coverage, we estimate an average CO2 intensity reduction of 18% to 2030, ahead of the 9% decline that the world is currently tracking.
Energy transition and high oil prices are not mutually exclusive. By executing their strategies, we estimate Europe’s integrated energy companies can fund energy transition plans that put their decarbonisation pathways ahead of society’s while still operating profitably.
The message that legacy major oil and gas companies are part of the energy transition solution is starting to resonate with investors. Our impression is that the market’s approach to the energy transition is becoming more balanced and educated, with the major oil companies being more aptly referred to as integrated energy companies.