As a major refiner of oil products, Phillips 66 is significantly exposed to climate and energy transition risks as the world moves towards lower carbon fuels.

In late 2021 Phillips 66 became the first U.S. refiner and second U.S. oil company to set Scope 3 emissions targets, pledging a 15% reduction in emissions intensity by 2030. It also announced a goal of reducing Scope 1 and 2 operational emissions intensity by 30%, shortly followed by a 2050 target for a 50% operational emissions intensity reduction.

Whilst these actions signify progress in a region where Scope 3 emissions targets in particular are hard to come by, the company’s strategy remains far from aligned with a pathway to limit the increase in temperatures to 1.5 degrees celsius. Both sets of targets are on an intensity basis so do not guarantee absolute emissions reductions. We have engaged the company on the underlying assumptions and drivers behind their strategy, highlighting that we feel their assumptions for renewable energy availability and cost advantages are unrealistic to the downside and that there are greater opportunities for decarbonising their operations.

On the positive side the company has made numerous investments across the energy transition value chain over the past 18 months, including in hydrogen and EVs, which will help with their scope 3 decarbonisation plans.

The company has been open to engagement and we have had good access to their experts and senior management, who have all given the impression of a company cautiously feeling its way through the energy transition. A positive sign of their intent is the aim to link quantitative emissions reductions to remuneration, to replace current qualitative measures. Overall we believe that Phillips 66 needs to significantly increase their level of ambition.