Climate Change and Energy Transition

Responding to the energy challenges

The energy paradigm in the world is changing and Galp aims to play an active role in this transformation, namely by:

Adapting our portfolio to future needs, whenever possible and in synergy with the current business;
Diversification of our assets, with a consequent mitigation of risks resulting from its carbon intensity reduction;
Developing innovative and differentiating solutions that promote the transition into a low-carbon economy.

By 2025, about 50% of our investments are aimed at capturing opportunities from the energy transition, of which 35% will be allocated to renewable power generation and new businesses.

Scenario Analysis

As the pace of energy transition accelerates, markets must adapt. Today’s context is of a world that will see a rapid change in the energy outlook and an increase in renewable energy investments and associated technologies to meet the Paris Agreement goals.

Galp’s strategic planning is based on a set of energy beliefs with a common assumption that a deep transformation will impact the energy sector during this decade towards a cleaner future:

Social and regulatory pressure accelerating the decarbonisation pace; • Growing share of electricity with expected significant increase in electric vehicle sales;
Solar and wind becoming a relevant energy source for power generation;
Green/blue hydrogen gaining momentum with viable options emerging;
European Union setting the strategic ambition to build an integrated lithiumion battery value chain;
Significant decrease in oil demand in Europe, leading to a wave of refinery rationalisation;
More electrified global energy mix, although oil and gas maintain a crucial role for several years.

In 2021, Galp updated its strategy towards a resilient investment case in an accelerated energy transition. Galp aims to reshape its portfolio and become a dynamic, digitally enabled customer-oriented company, with a material position in renewables and new energies, and industrial operations being progressively decarbonised and transformed towards a green energy hub.

The Company’s strategy originates a value-driven investment case, which relies on a clear capital allocation framework, allocating around 50% of its net investments in the 2021-25 period towards low-to-no-carbon activities.

To ensure that Galp is prepared for potential disruptions in energy transition, its strategic planning includes the conception of a credible but demanding scenario based on a fast-paced transition, with key variables being even further stressed to accommodate more challenging macro conditions with potential to occur in the future.

Galp’s strategic planning is periodically reviewed and takes in consideration the risks and opportunities of climate change across three-time horizons (short-, medium- and long-term) and their impact on strategic lines and on competitiveness.

Yearly Business Plans and relevant investment decisions are accompanied by an analysis of their impact on the Company’s emissions and climate related targets, ensuring that they are aligned with the overall decarbonization and transition strategy.

Galp seeks to create a strategy that tackles the current and future context of energy and mobility, ensuring Galp’s resilience and agility in an increasingly complex, fast, and ever-changing world.

We are focused on the development of sustainable businesses that generate value, as an integrated energy Company, through a diversified portfolio of energy generation, ranging from oil and natural gas production to renewable energies, with an industrial background geared towards the new market needs, through the adaptation, efficiency and continuous transformation of its processes, and with more innovative commercial solutions that promote the energy transition of our customers and consumers.

Climate change risks

Galp has been working on the categorisation of physical and transition climate risks in its activities. This analysis aims to assess the resiliency of our strategy to different scenarios, as well as identify the most relevant associated risks and opportunities.

To ensure proper management of these risks, Galp’s Risk Management Policy defines objectives, processes and responsibilities that enable Galp to establish a solid risk management structure. It also addresses Galp’s commitment to manage the inherent exposure in accordance with the Company’s Risk Appetite, ensuring compliance with legislative, regulatory and ethical conduct requirements.

Based on the guidelines established in the Risk Management Policy, Galp identifies, assesses and manages the risks and opportunities inherent to its strategy, including emerging risks and opportunities. In 2021, climate change has been identified as a top risk.

Galp integrated the TCFD recommendations in the identification of these climate change related risks. Chronic (e.g. longer-term shifts in climate patterns like sea level and mean temperatures rise, changes in wind and precipitation patterns, etc) and acute (e.g. increase severity of extreme weather events such as cyclones, hurricanes, or floods) physical variables as well as market variables (such oil prices, CO₂ prices, electricity prices, refining margins and oil & gas demand) were collected in order to estimate the impact of climate change risks in Galp’s operations and value at risk.

As part of the mitigation and adaptation plan with measures to avoid or reduce the associated risks and foster opportunities, Galp has presented a refreshed strategy to reshape its Portfolio, refresh Relations and reenergise People. Galp is going to scale-up the renewables business, expand the position in the electricity value chain and develop new energies to accelerate the decarbonisation path, with the ambition to become net carbon neutral by 2050.

For more information on Galp refreshed strategy, please see our Strategy.

We manage risk as an opportunity

Energy transition and climate change risks and opportunities are integrated and evaluated by the Company through an holistic risk management approach. In this context, we identify financial and non-financial risks and opportunities, we seek methodologies and metrics to assess and incorporate them into the business and strategy, and we establish initiatives, action plans and targets to mitigate risks and exploit opportunities.

The climate and energy transition related risks and opportunities integrate the Company's strategic formulation processes and are overseen by the Board of Directors (BoD) and the Executive Committee (EC), with their members participating actively in specialized committees in these areas such as, the Sustainability Committee, Risk Management Committee, among others.

Galp monitors and analyzes the main transition risks, namely the competition, legal and compliance, and market risks, as well as the physical risks caused by disruptive events resulting from climate change.

Carbon management throughout our value chain

Galp integrates climate and sustainability issues, through mechanisms and requirements that are considered in the decision-making processes connected to the various project development stages, throughout their life cycle.

In assessing new opportunities In assessing new opportunities, Galp stress tests the impact of the related CO2 emissions in its metrics and targets before any investment decision. In making this analysis, the Company considers an internal carbon value that changes with time, varying from a present-day value that correlates with the current price of an EU-ETS allowance and increases in time to prices above 200€/tonCO2e in 2050, ensuring the incorporation of a potential global carbon price and its temporal evolution.

In the development phase In the development phase, we delineate our projects according to the O&G industry best available practices, by working on the adoption of more efficient and sustainable technological solutions, with direct impact on the reduction of the carbon intensity of the activities. This approach has allowed us to achieve an activity carbon intensity of 10,3 kgCO2e/boe, considering operated and non-operated assets (WI), better than the benchmarks used by IOGP.

Through continuous monitoring The carbon intensity of our businesses is continuously monitored, see in more detail Galp’s Carbon footprint and carbon intensity metric. Our objective is to continuously reduce the carbon intensity of our activities.

We actively and transparently participate in global initiatives on climate change

Task Force on Climate-related Financial Disclosures

We take on the importance of a responsible leadership that integrates climate challenges into its strategy. Galp's support to the Task Force on Climate-related Financial Disclosures reflects a commitment to promoting a more balanced relationship between meeting energy needs and minimising our operations’ carbon intensity, as well as to a transparent reporting of climate-related information.

Learn more about this initiative and see here our alignment with the TCFD requirements.

Zero Routine Flaring by 2030 of the World Bank Group

In 2015, in the capacity of exploration and production operators, we have endorsed the Zero Routine Flaring by 2030 initiative. Our goal is to scale the new E&P projects to zero flaring under normal operating conditions.

Learn more about this initiative.

We mean business

We have joined the We Mean Business coalition, integrated in the NAZCA Tracking Climate Action initiative of the United Nations Framework Convention on Climate Change (UNFCC).

Galp has made a commitment to take action, especially on climate issues, by using an internal carbon price in the investment decision-making processes, by the corporate commitment assumed in the Climate Change Policy, and by implementing the TCFD recommendations.

This platform, which consists of a group of organizations that work with the business sector and investors worldwide, promotes the transition into a low-carbon economy. The platform also fosters proactive climate action, encouraging the creation of new political milestones regarding climate change.

Learn more about this initiative.