An Analysis of Carbon Reduction Pledges of the U.S. Oil and Gas Companies

We study carbon reduction pledges of publicly traded U.S. oil exploration and production (E&P) companies. Of the 69 firms in the sample, 18 have committed to net-zero carbon targets, 14 have announced significant emissions cuts, while the remaining 37 firms have not announced any formal commitment to reduce emissions. We find that a firm’s energy production and ownership by BlackRock is positively associated with its decision to announce a net-zero pledge or significant emission cuts. E&P firms are likely to announce such commitments after Engine No.1 proposed its slate of directors for Exxon’s Board. The stock market reacts more negatively to net-zero pledges relative to emission-reduction pledges, on average. However, the market reaction is related to the quality and credibility of these pledges. In particular, we find that the negative market reaction to net-zero pledges is mainly driven by firms with post-2030 target years relative to firms that commit to achieving net zero by 2030. We also find that the market reacts more negatively to net-zero pledges when the firm does not show the strength of its commitment via the presence of a board-level committee to monitor the company’s progress towards its emission goals or when the top management’s pay is not linked to specific emission reduction goals