Pemex, Mexico’s state-owned oil company, and one of the world’s largest oil producers, holds a unique position in both the global and Mexican economy, and Mexico’s energy landscape.
The company was added to the Climate Action 100+ focus list in 2020 due to the material systemic and investment risks posed by climate change to the company and its stakeholders. Recognising the alignment of addressing these risks with fiduciary duty, a diverse group of local and international bondholders have since sought to engage the company. Establishing consistent, high-quality engagement on climate was initially challenging. However, investors have since seen significant improvements in the quality and continuity of dialogue with the company – a responsiveness which has resulted in notable improvements in its sustainability goals and how it will address climate-related risks. Recent progress includes the formation of a Sustainability Committee in 2023, followed by the release of Pemex’s first Sustainability Plan in 2024, which included a range of decarbonisation commitments.
Engagement background and leading objectives
Several key engagement objectives were set by investors from the outset – all aimed to align Pemex’s sustainability strategy with global best practices and address material risks. These included: establishing ongoing and productive engagement dialogue; enhancing climate-related disclosures; instituting oversight of climate risk at the board level; ensuring there is consistency between decisions on capital expenditures and long-term climate objectives; mitigating operational methane emissions; and improving the company’s health and safety standards.
In 2023, Pemex created a Sustainability Committee, establishing oversight of climate change at the board level. This progress was reflected in the company’s first score against the Benchmark on Indicator 8. Following this, the investors met with the chair of the Committee, marking the first opportunity for the investor group to engage with the company’s board.
2024 Sustainability Plan: Key actions for transition
Pemex’s first Sustainability Plan, published in March 2024, represents another significant step in the company’s commitment to address climate risks and align with investor expectations. Developed in consultation with S&P Global, with additional input from the Climate Action 100+ engagement co-lead investors, the plan outlines a forward-looking strategy to 2050 and includes:
- GHG Emission Reduction Targets: Pemex set a net-zero emissions (Scope 1 & 2) by 2050 ambition, alongside a range of short-, medium-, and long-term greenhouse gas reduction targets, which have resulted in improved scores on Indicators 1-4 on the company’s 2024 Benchmark Assessment.
- Enhanced Disclosures: Pemex committed to aligning its reporting with international standards such as ISSB and TCFD, with further improvements expected in 2024 and 2025. The company now scores against Indicator 10 of the Benchmark.
- Capital Allocation: Pemex’s plan provides an overview of the actions required to develop a framework to allocate capital for climate goals, which will give investors greater visibility on sustainability investments.
- Methane Strategy: Pemex set a target to reduce methane emissions by 30% and achieve zero routine gas flaring in E&P, both by 2030, alongside a commitment to improve the company’s methane emissions data quality.
Further priorities and further engagement
With notable improvements in engagement responsiveness and dialogue, strengthened climate governance, alongside the welcome release of the company’s first Sustainability Plan, the Climate Action 100+ engagement with Pemex has laid a strong foundation to drive future progress in Pemex’s decarbonisation journey.
Investors will continue to engage with the company, and the new administration, retaining the ability to act independently based on the insights they gain from this engagement in line with their fiduciary duty. Investors look forward to monitoring and further engaging Pemex on its progress towards its climate goals and alignment of its actions with international best practices for oil and gas companies – which in addition to managing climate risks – will also help facilitate Mexico’s transition to a low carbon economy and uphold their commitment to the Paris Agreement.
Alejandro Bujanos, Head of Sustainable Investing at Afore SURA; Nicolas Jaquier, Portfolio Manager at Ninety-One; and, Marion Plouhinec, Senior ESG Analyst at Carmignac:
“As co-leads of the Climate Action 100+ engagement initiative, we are encouraged with the steps Pemex has taken so far in building a climate strategy, such as establishing a Sustainability Committee in 2023 and releasing its first Sustainability Plan in March 2024. This progress highlights the value of company-investor dialogue, through robust collaboration with the investor relations team but also, importantly, through access to the board.
Pemex’s recent commitments mark a first important step in signalling its willingness to take action on climate change. As investors, we will continue to stay engaged by closely monitoring the execution of its sustainability strategy. We will continue to collaborate with the company and its stakeholders to encourage further efforts towards mitigating negative environmental externalities, as well as focusing on encouraging the company to seize the opportunities presented by the climate transition.”
Víctor Rodríguez Padilla, CEO of Pemex:
“At Pemex, we are deeply committed to sustainability and environmental responsibility. The creation of our Sustainability Committee in 2023, the release of our first Sustainability Plan in March 2024, the adoption of climate risk disclosure under the Task Force on Climate-Related Financial Disclosures methodology, and re-affiliation with the International Association of Oil and Gas Producers are just the first steps in our sustainability agenda.
We have set clear goals and objectives, such as reducing greenhouse gas emissions, eliminating routine gas flaring in our exploration and production activities, and implementing clean energy and cogeneration projects. We highly value ongoing dialogue with society and our investors, and we are determined to continue advancing our sustainability strategy. Together we can tackle climate change and take advantage of the opportunities that the energy transition presents to build a more sustainable future for all.”
Contributing investors supporting the CA100+ engagement with Pemex, and this case-study, include:
abrdn
Afore Banamex
Afore XXI Banorte
Aviva Investors
BlueBay Fixed Income Investment Platform, RBC GAM
Fisch Asset Management
LarrainVial Asset Management
Legal and General Investment Management
MEAG Munich Ergo Asset Management GmbH
Nordea Asset Management
ODDO BHF Asset Management