COP28 determining for strategy oil giants

The main goal of this annual climate conference is to limit the long-term global temperature rise to 1.5 degrees Celsius. Nevertheless, the world is currently heading towards a warming of 2.5 to 2.9 degrees by the end of this century. This warming increases the likelihood of natural disasters, among other things, with especially the most vulnerable countries being hit hardest. Accelerating the energy transition is therefore the most important topic at this climate summit. 

The summit includes reporting on the progress of individual countries. A Global Stockstake is used for this purpose. This "country map" shows how far each country is in meeting the commitments made to limit global warming. 

In doing so, countries with larger economies and greater responsibility for CO2 emissions will have to take more ambitious measures. Climate finance is also high on the agenda, with a special focus on the so-called "loss and damage" fund to compensate vulnerable countries. 

There is also criticism of the COP, including that too little concrete progress is being made. In addition, there are question marks about the role of the oil- and gas-friendly state of Dubai as host country. This country stands to gain from firm influence on the outcome of the COP. We believe that despite the apparent slow progress and location, this climate summit is of great importance and offers opportunities to reach global agreements that transcend national interests.

In recent years, demand for oil and gas has remained strong and this is not expected to change overnight. This gives oil processing companies confidence that their operations will remain profitable, and it is a driver for continuing to focus on major acquisitions in addition to the search for new oil and gas fields. Turning from traditional oil and gas giant to renewable energy player is complex and costly. All together, these issues mean that the oil and gas sector lags behind other sectors in striving to achieve net zero carbon emissions by 2050.

Concrete steps around the phase-out of fossil energy could result in assets (such as oil reserves) falling in value, or even losing their value completely. It is, therefore, very important for both oil companies as well as investors to formulate a clear overall strategy as soon as possible.

Whether or not to move with the energy transition represents either an opportunity or a risk for companies. Not moving along creates a greater risk of problems arising from new laws and regulations, for example. For instance, under the Corporate Sustainability Reporting Directive (CSRD), companies are expected to be more transparent about their sustainability efforts. For example, on CO2 emissions, environmental pollution and what the cost is to get the company to net zero emissions. 

This CSRD will reveal differences between companies more clearly, which can translate into implications for a company's valuation. Something for investors to keep an eye on and for companies to take the plunge anyway. This is why we choose companies that are innovative and ahead in the energy transition. 

We see an opportunity for oil and gas companies to lead the de-carbonisation calendar with their knowledge, capital and capacity. By doing so, the sector can play an important role in solving the climate crisis and will not only survive but also be able to grow, creating opportunities for investors. 

It is expected that with a clear global strategy, energy companies will dare, want and be able to adapt further, for example by investing (more) in renewable energy, innovation and solutions such as CO2 capture and storage. The outcome of the COP can be an important stick in this.