Goldman Sachs GS SUSTAIN: ESG of the Future Oil & Gas We consider 98 Oil & Gas companies in our analysis, almost half of which are based in Americas. Within the Oil & Gas sector, our analyst survey comprises 45 companies in Americas, 25 in Europe and 28 in Asia Pacific. We received estimates for 64%, 88% and 50% of those in Americas, Europe and Asia Pacific, respectively. We calculate GHG emissions for the Oil & Gas sector dividing Scope 1+2 CO -eq emissions by energy sold (as a result of upstream operations and/or refining). As 2 mentioned earlier, while our estimates are for Scope 1 and 2 emissions, our colleagues Carbonomics emissions intensity path for Oil & Gas also includes Scope 3 emissions. Our analysis indicates Scope 1+2 emission intensities for the Oil & Gas sector declining by 10%-16% by 2025E vs. 2019. Our analyst estimates point towards a 16% reduction in Scope 1+2 emissions intensities for Oil & Gas Producers and a 10% reduction for Oil Refiners by 2025E vs. 2019. On Oil & Gas Producers, our analyst estimates imply a 2% YoY reduction of intensity in 2020, followed by subsequent 2%-4% YoY decline from 2021E on. On Oil Refiners, emissions intensities increased ~18% YoY in 2020 and are expected to pivot to a downward trajectory in subsequent years (3%-8% YoY decline from 2021E on). Please see Exhibit 29 for more details on Oil & Gas Producers, Exhibit 30 for more details on Oil Refiners. Why we believe this will matter for investors. As we detailed in our Green Capex report, the Oil & Gas sector holds the greatest share of Green Capex “spare capacity” — via higher reinvestment rate of Capex and R&D and higher leverage on the balance sheet — on path to Net Zero, Clean Water and Infrastructure goals. Additionally, on the back of ongoing geopolitical events, we believe the shift in free cash flow towards commodity producers may increase the willingness of some investors to own stocks in these sectors for the purpose of helping to influence where the FCF gets redirected — either via reinvesting or returning to shareholders. While we do not believe every mandate is set up to make this shift — and ESG funds will likely need to make a quantified case for impact to their investors — we see the case for engagement vs. exclusion growing over time. In our view, engagement will be crucial to the deployment of the spare capacity for additional Green Capex, and we believe investors will tend to gravitate towards companies able to successfully abate emissions, in addition to f avorable returns. Investment Implications. While Oil & Gas companies have historically been avoided/excluded in ESG funds — the sector is currently underweight in ESG funds (70% and 42% underweight for Producers and Refiners, respectively, as shown in Exhibit 18 ) — we see opportunities for greater recognition of transition stories and companies able to successfully decarbonize their operations. In addition, we note the Russia/Ukraine conflict is helping to bring some added balance to the exclusion vs. engagement debate, which in our view is a key catalyst for potential further appreciation of Oil & Gas companies among ESG investors. To that regard, we have already seen some isolated evidences of potential change in attitudes — e.g., Swedens SEB bank recently reversed a defense industry exclusion policy for six of its funds, while in the US, CalSTRS board voted to oppose a bill that would require divestment from fossil fuels.