Assessing National Oil Companies' Transition Plans: An essential tool for banks, investors, and regulators

National oil companies (NOCs) account for half of oil and gas production, 40% of investments in the sector, and two thirds of the planet's hydrocarbon reserves. An assessment of 99 leading oil and gas companies, which includes 40 NOCs, shows that NOCs are expected to exceed international oil companies in their carbon budgets. Any chance of limiting global warming to 1.5°C and even well below 2°C therefore requires a better understanding of how NOCs function and what levers can be activated to support their decarbonization.

This brief, developed by the World Benchmarking Alliance, International Institute for Sustainable Development, and University of California Santa Barbara, builds on previous work from its authors, including an assessment of how investors can jumpstart energy transitions for NOCs and how NOCs themselves fare with their decarbonization strategies. It focuses particularly on internationally exposed NOCs (those that are more dependent on debt or equity financing or those that are listed). Contrary to what is often perceived, financial actors, like governments, can have an important impact on NOCs. However, there is still a disconnect between financial actors and the need for NOCs to decarbonize. In particular, NOCs' credit ratings are currently not linked to their low-carbon transition plans. Given the heightened transition risks many NOCs will face in the future, the benefits of requiring such a link should act as a strong incentive for financiers to connect the dots.

The brief has three main objectives:

• First, it offers guidance to investors, banks, standard setters, and governments on how NOCs can enhance their low-carbon transition plans and align their investments with the 1.5°C target under the Paris Agreement.
• Second, it delves deeper into how different financial actors can drive NOCs' transition plans.
• Third, it seeks to build momentum ahead of the United Nations Climate Change Conference (COP 28) to raise the bar and ensure NOCs are held accountable for their investments, production plans, and decarbonization strategies.