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Petróleo Brasileiro

Petróleo Brasileiro (Petrobras) is an integrated energy company active in exploration and production, refining, marketing, transportation, petrochemicals, oil product distribution, natural gas, electricity, chemical gas and biofuels. It produces approximately 2.8 million barrels of oil equivalent daily (Mboe) and has proven reserves of 9.7 Mboe.

It is the largest company by value on Brazil’s B3 stock exchange. Although the Brazilian Treasury holds the majority of the company’s voting shares, it has almost 300,000 minority shareholders, comprising a mix of individual and institutional investors.

Background
We have been engaging with the company on corporate governance issues such as the nomination and election of independent directors by minority shareholders, as well as on culture, conduct and compliance in the wake of the Lava-Jato corruption scandal. Since 2009, an ongoing investigation has revealed a massive corruption scandal at the company, involving politically appointed senior executives who extracted bribes from suppliers and contractors and channelled the proceeds to politicians.

Until 2015, Petrobras had been consistently awarded a C score in the climate change rating of the CDP initiative, which is a relatively poor grade for such a large company. In addition, investor expectations of oil and gas companies have been rising, with shareholder resolutions tabled at the AGMs of European and US companies, requesting the enhanced disclosure of the climate change risks facing businesses. Furthermore, the Institutional Investors Group on Climate Change published its investor expectations of the oil and gas industry in 2015, outlining a range of improvements required in the sector.

Our engagement
We started our engagement on climate change with an initial focus on the company’s reduction of gas flaring and improved energy efficiency in its downstream operations. We held discussions with its environmental team and were pleased with the improvements it made in these areas.

Our attention then shifted to the company’s wider strategy on climate change. We raised the issue with its minority-elected board members, sharing our view on international best practice. Subsequently, we presented to the board’s strategy committee the expectations of investors in relation to the governance of climate change and the implications for its strategic planning and wider disclosure.

Following the board presentation, we had further meetings with the company’s strategic planning team and the chair of the strategy committee, examining in greater detail the disclosure guidelines of the Task Force on Climate-related Financial Disclosures (TCFD) and reiterating investor expectations on their implementation.

Changes at the company
The company’s CDP score rose from C in 2015 to B in 2017, in a reflection of the company’s improving greenhouse gas management practices. In December 2017, we were pleased that the transition to the low-carbon economy had been introduced as a strategic priority for the first time in the company’s business and management plan for 2018-2022. At the launch event of the plan, the CEO highlighted the three work streams in this area, namely carbon emission reductions, investment in new technologies to reduce the company’s impact on the climate and the development of new renewable energy businesses.

We continue to engage with Petrobras to obtain a more comprehensive disclosure of its management of climate change risks and opportunities through the implementation of the TCFD recommendations.

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