By Rebecca Elliott and Bradley Olson
As global leaders prepare to debate action on climate change at the United Nations on Monday, big oil companies are aiming to show investors and government officials that they are part of the solution to a problem they helped cause.
Companies such as Exxon Mobil Corp., Royal Dutch Shell PLC, BP PLC and Chevron Corp. disagree on how to do so, but they have to try: Their shareholders are demanding it.
Fossil-fuel companies are falling out of favor with investors over underwhelming returns and fears that their long-term prospects are uncertain. Electric vehicles and renewable energy are gaining traction as governments adopt tougher regulations on greenhouse-gas emissions to address a warming planet.
The oil and gas sector now makes up just 4% of the S&P 500 index, down from 10% a decade ago, FactSet data show. Exxon recently fell out of the S&P 500's top 10 companies for the first time in years.
World leaders will convene at the U.N. on Monday to chart their paths to meeting the goals of the 2015 Paris accord, which seeks to limit global temperature increases to "well below" 2 degrees Celsius. But much of the action is expected to happen on the sidelines and at events hosted throughout the week by industry and investor groups, where oil-and-gas companies--more engaged on climate issues than in the past--will make the case that they remain sound investments.
"One of the top risks today is climate change," said Michael Rubio, Chevron's general manager over environmental, social and governance issues. "Engagements have increased, and investors are expecting us to voluntarily disclose how we're managing the climate-related risks and opportunities."
The world's largest oil-and-gas producers are in general agreement on reducing greenhouse-gas emissions from their drilling sites, pipelines and other operations. The companies have set targets to curb releases of methane, a potent greenhouse gas, for example. They have also discussed new initiatives tied to removing carbon dioxide from the atmosphere and reducing emissions from industries such as shipping, according to people familiar with the matter.
But there is friction among some of the companies over whether to commit to reducing greenhouse-gas emissions from the oil byproducts they sell, such as gasoline. These releases constitute roughly 88% of major oil-and-gas companies' greenhouse-gas footprint, according to estimates from Redburn, a London-based research firm.
Shell was among the first of the major oil companies to agree to cut those emissions, a decision that initially angered some members of the Oil and Gas Climate Initiative, an industry consortium. The dispute grew heated in meetings among the companies last year, according to people familiar with the matter. Companies including Total SA and Repsol SA also have set targets to reduce the carbon intensity of their products.
Companies that have pushed back argue that it would be difficult, if not impossible, for oil companies to realistically control such goals since, for example, a gallon of gasoline sold to a Toyota Prius driver would create less emissions than a gallon sold to an SUV owner, according to one executive. Exxon, Chevron and BP are among those whose executives are concerned about setting such emission goals, the people said.
Beyond that, some executives believe it is impossible for an oil-and-gas company that is seeking to increase production to live up to any agreement to cut those sources of greenhouse gases, known among the companies as scope 3 emissions.
"The most effective way to get at scope 3 emissions is through the role of government," Mr. Rubio of Chevron said, referring to measures to reduce greenhouse-gas discharges by putting a price on them.
U.N. Secretary-General António Guterres has pushed for similar steps. "If we want to have the markets reflecting the reality, we need to have a price on carbon," he told reporters Friday.
Environmental, social and governance concerns, long the province of a small cohort of impact investors, have gained more mainstream momentum in recent years. Asset managers that once evaluated environmental or sustainability issues separately from typical financial analysis are now incorporating those factors into their assessments of energy companies' future prospects, said Jonathan Waghorn, a portfolio manager for Guinness Asset Management Ltd.
"I really think it's just shifted in the last year," said Dirk Cockrum, a vice president overseeing sustainability efforts at Houston-based pipeline company Kinder Morgan Inc. Nearly all of Kinder Morgan's largest shareholders ask about the company's performance in environmental, social and governance areas, or what is known as ESG, he said, and the company faces a deluge of requests from firms that generate sustainability scorecards.
"The amount of investors who are looking closely at these issues is growing and is becoming significant," said Osmar Abib, chairman of global energy at Credit Suisse Group AG. "It's something oil-and-gas companies need to take seriously, and they are."
Climate activism is also bringing change to the banking industry. Some banks, such as Toronto-Dominion Bank, have faced a backlash for helping finance energy projects such as the Dakota Access Pipeline. Some bank executives are in discussions with oil-industry officials to create new standards requiring energy borrowers to detail climate risks in loans, according to people familiar with the matter.
"The societal pressures are only going to increase," Susan Dio, BP's top U.S. executive, said at a natural-gas conference last week.
Write to Rebecca Elliott at email@example.com and Bradley Olson at Bradley.Olson@wsj.com