Equinor : Shareholders proposal and supporting statement_item 15

Equinor - shareholder resolution 2024 AGM

10th April 2024

Resolution: In keeping with Equinor ASA's commitment to support the goals of the Paris Agreement, and considering the Norwegian Government's explicit expectations for the company toalign actively with the Paris Agreement as per its statement at Equinor's 2023 AGM, the general meeting asks the Board to update its strategy and capital expenditure plan accordingly. The updated plan should specify how any plans for new oil and gas reserve development are consistentwith the Paris Agreement goals.

Shareholder Filers

• Sarasin & Partners LLP - acting on behalf of Sarasin Investment Funds Ltd (SIF), where the shares are held through the appointed Transfer Agency Northern Trust under the nominee 'Nortrust
  Nominees Ltd'
• Kapitalforeningen Sampension Invest - Shares in Equinor ASA are held through a nominee J.P. Morgan Bank Luxembourg S.A
• West Yorkshire Pension Fund - Shares in Equinor ASA are held through a nominee Northern Trust
• Achmea Investment Management - Shares in Equinor ASA are held through a nominee Stichting Bewaarder Achmea Beleggingspools

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Supporting Statement

As long-term investors, we are committed to supporting alignment with the Paris Agreement goals as a foundation for delivering sustained economic growth and investment returns. We would

welcome the Board and other shareholders' support for this resolution.

This Supporting Statement is split into two sections:

1. Risks to investor capital from Equinor's current strategy and capital expenditure plans; and
2. Evidence that Equinor's strategy is not consistent with the Paris Agreement goals.

1. Risks to investor capital

In this section, we touch on three core risks for investors:

1. Risks of future impairments linked to fossil fuel investment;
2. Legal and regulatory risks; and
3. Systemic risks to economic growth and long-term investment returns.

1.1 Risks of future impairments from over-investment in fossil fuel production

IEA forecasts peak in oil and gas demand by 2030 given current policies

According to the International Energy Agency's (IEA's) 2023 World Energy Outlook, on our current trajectory - the Stated Policies Scenario (STEPS), both oil and gas demand are expected to peak by the end of this decade1.

Source: IEA, World Energy Outlook 2023, October 2023

This is a much faster transition than the IEA expected, even just last year, and is driven above all by the accelerating roll-out of clean energy and low carbon technologies (see charts below on repeated revisions to anticipated natural gas demand and solar capacity in each updated edition of the IEA's World Energy Outlook, for instance).

1 https://www.iea.org/reports/world-energy-outlook-2023

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Source: IEA, World Energy Outlook 2023, October 2023

Paris-alignment will mean faster reductions in oil and gas demand

The implementation of Governments' promised policies to tackle climate change would mean even faster declines in demand for oil and gas than forecasted above. If the current national energy and climate pledges were implemented (the IEA's Announced Pledges Scenario - APS), oil and gas demand would fall 45% below today's level by 2050, consistent with temperature rise of 1.7°C. In a

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Paris-aligned scenario (1.5°C temperature trajectory captured in the IEA's Net Zero Emissions scenario (NZE)), oil and gas use would decline by more than 75% by 20502.

Equinor's strategy is predicated on an elevated demand and price outlook

Equinor's strategy and capex plan do not reflect this falling demand picture. Their central planning assumption is a stable $75 per barrel (bbl) oil price, which is closest to prices in the IEA's 1.7°C temperature pathway (APS - see Table below)3. Moreover, in recent years Equinor has increased its oil and gas price forecasts. Equinor's February 2023 Capital Markets Update (CMU), used a base case oil price of $70/bbl and in February 2022 it was $65/bbl.

Equinor's increasingly optimistic view of oil prices contrasts with the IEA's predictions that oil prices are likely to fall as demand for fossil fuels come down. Under the IEA's 1.5°C scenario (NZE) - the pathway that Equinor has committed to aligning with - oil prices fall to $42/bbl by 2030, and $25/bbl by 2050 (see Table below)4.

Table 1: IEA's fossil fuel prices by scenario in 2023 World Energy Outlook

Source: IEA, "2023 World Energy Outlook", October 2023.

Risks of write-downs

Whether or not Equinor's forecasts for oil and gas demand are prudent matters critically to the risk

of future impairment. By assuming elevated future prices, management is able to forecast attractive

1. IEA, "Oil and gas industry in Net Zero Transitions", November 2023 (https://www.iea.org/news/oil-and-gas-industry-faces-moment-of-truth-and-opportunity-to-adapt-as-clean-energy-transitions-advance)
2. See Equinor's latest Capital Markets Update, Feb 2024 for the key oil and gas price assumptions used.

(https://www.equinor.com/investors/capital-markets-updates)

4 See Table 2.2 in IEA, "World Energy Outlook 2023":https://iea.blob.core.windows.net/assets/86ede39e-4436-42d7-ba2a-edf61467e070/WorldEnergyOutlook2023.pdf

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returns for further investment into exploration and production. Specifically, they expect a 15% return on average capital employed (ROACE) by 20355.

However, their returns are highly sensitive to those price assumptions. At $55/bbl they are cash flow neutral6. In its 2023 Integrated Annual Report, Equinor estimated that it would experience a 42% reduction in the Net Present Value (NPV) of the existing portfolio in a 1.5°C-aligned scenario due to lower oil and gas prices and higher carbon taxes7. It would see its revenue drop 27% in 2030, compared to its current assumptions8.

Equinor also provides estimates for impairment risk under a 1.5°C scenario in Note 3 to its 2023 Financial Statements. It estimates $10 billion (before tax) of its upstream and intangible assets could be written down using the IEA's forecast prices9. This is equivalent to about 20% of reported total equity as of 31st December 202310.

Equinor has a history of over-optimism leading to large impairments

Equinor's reported impairment risk noted above looks at its existing asset base. The dangers of excessive oil price optimism, however, is not a new theme. In an assessment of Equinor's US E&P investments, PWC concluded the following11:

"Between 2007 and 2019, Equinor recorded an accounting loss of 21.5 billion USD on its US

activities. 9.2 billion USD was due to impairments of onshore assets, 4 billion USD was related to impairments of the offshore portfolio, and 4 billion USD was expensed due to

unsuccessful exploration activities…

Long periods of growing demand and high prices influenced the outlook and strategic thinking at the time. An entire industry effectively formed a consensus that an oil price above

100 USD was a "new normal". This assumption fuelled investments, created a heated market

and ultimately turned the onshore industry into a victim of its own success…

Equinor's growth strategy and production targets drove behaviour at all levels of the

company. The company made acquisitions and investments in US onshore based on an expectation that the oil price would increase for the foreseeable future. Investments were not sufficiently tested for robustness at a low-price scenario."

As flagged by PWC, Equinor was not necessarily worse than peers, and took a number of steps following the period assessed to instil stricter capital discipline. The analysis, however, is a reminder of the dangers of over-optimism.

1. CMU (Feb 2024).
2. CMU (Feb 2024) transcript, CFO statement:https://cdn.equinor.com/files/h61q9gi9/global/e4b740e011103ff917e13a7b8f916b1ba3515b2a.pdf?2024-Feb-07-EQNR-OSL-137022678440-Transcript.pdf
3. "Equinor Integrated Annual Report 2023", March 2024, p.87
4. ibid
5. Note 3 to the Financial Statements in Equinor's 2023 Integrated Annual Report (p. 167)
6. See Consolidated Balance Sheet, Integrated Annual Report 2023
7. Report for Equinor's Board: PWC, "Equinor in the USA - Review of Equinor's US onshore activities and learnings for the future", October 2020: https://www.equinor.com/content/dam/statoil/documents/newsroom-additional-documents/news-attachments/9oct2020-report-equinor-usa.pdf

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Risks in Equinor's oil and gas project pipeline

Looking forward, continued capital deployment into new reserve development and infrastructure based on demand and oil and gas price assumptions that fail to adequately account for decarbonisation could result in future capital destruction.

According to analysis by the research firm ACCR, using data from Rystad Energy, Equinor's planned international projects are particularly vulnerable to lower oil price assumptions12. ACCR estimates that the NPV of Equinor's unsanctioned international projects would drop 50% when assessed using the current forward Brent oil price curve ($78 in 2024 falling to $54 by 2033 and then flat), rather than Equinor's stable $75/bbl assumption13. Using the IEA's $45/bbl 2030 price for a 1.5°C pathway, we would expect to see even greater NPV reductions, and potentially negative values.

ACCR, furthermore, finds that in addition to being relatively high cost, most of Equinor's largest development projects would operate beyond 2050, despite Equinor targeting net zero emissions at that date. This includes the Roncador expansion, Bay du Nord and Bacalhau expansion oil projects and the Tanzania LNG project (see Table below).

Based on both IEA industry data and historic Equinor performance, ACCR concludes that over half the volumes that may be discovered by Equinor's ongoing exploration activities would likely be produced after 2050. Consequently, the exploration portfolio would be unlikely to generate significant positive cash flows before 2050.

For the expected cash flows to materialise, therefore, it is clear that oil and gas demand would need to be far in excess of what could be considered aligned with the Paris Agreement. If this demand fails to materialise, and prices come down, Equinor's main international projects - which are at the upper end of the global cost curves - would be exposed to potential future write down risks and asset stranding, if they went ahead14.

Table 2: Major unapproved oil projects in Equinor's international pipeline

Source: ACCR using Rystad data (ACCR, April 2024)

1. ACCR, "Equinor's challenge: which way to Paris", April 2024 (https://www.accr.org.au/research/equinor%E2%80%99s-challenge-which-way-to-paris/). In 2022, production outside of Norway made up 29% of proved reserves and 27% of production (see Equinor's 2022 Integrated Annual Report, p. 96, 102, 111)
2. Ibid. ACCR also estimates that its existing international oil and gas projects are on track to deliver a negative net present value (NPV) return of -$3.6 billion.
3. Please also see Charts from ACCR in Section 2.3 below.

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Table 3: Largest unapproved gas projects in Equinor's international pipeline

Source: ACCR using Rystad data (ACCR, April 2024)

1.2 Regulatory & legal risk

Equinor's Board made the following commitment to shareholders in both its Energy Transition Plan and its statutory Integrated Annual Report 202215:

"Equinor is committed to long-term value creation in support of the goals of the Paris Agreement. We aim to be a leading company in the energy transition and have set an ambition to reach net zero by 2050."

Some investors will have reasonably relied on this pledge in deciding to hold Equinor's shares. This pledge underpinned shareholder support for Equinor's Transition Plan in 202216. The Norwegian Ministry for Trade, Industry & Fisheries (responsible for the State's shareholding) set out that its support for the Transition Plan was predicated on Equinor adhering to its commitment to align with the Paris Agreement at Equinor's 2023 AGM17:

The state voted in favor of Equinor's energy transition plan at the general meeting in 2022, based on the company being clear that the long-term value creation supports the goals of the Paris Agreement, cf. the state's statement at the annual meeting last year.

The Ministry furthermore set out three specific expectations for Equinor in this 2023 statement:

The state expects cf. Meld. St. 6 (2022 - 2023) - Greener and more active state ownership (white paper on the State's direct ownership of companies) that:

1. The company identifies and manages risks and opportunities relating to climate and integrates these into the company's strategies.
2. The company sets targets and implements measures to reduce greenhouse gas emissions in both the short and long term in line with the Paris Agreement, and reports on goal attainment. The targets shall be science-based when available.

1. Energy Transition Plan (p. 4); Equinor Integrated Annual Report 2022 (p. 84). We note that the first half of this statement appears to have been removed in the 2023 Integrated Annual Report.
2. The State's 2023 AGM protocol states: "The state voted in favor of Equinor's energy transition plan at the general meeting in 2022, based on the company being clear that the long-term value creation supports the goals of the Paris
   Agreement"
3. See Ministry's statement linked to consideration for the WWF and Greenpeace Shareholder Resolution asking the

company to identify and manage risks and possibilities regarding climate and integrate these in the company's strategy https://cdn.equinor.com/files/h61q9gi9/global/8ec49409d8ac1bff4ba613604b3ffe36ee623d13.pdf?minutes-from-annual-general-meeting-in-equinor-asa-10-may-2023.pdf

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1. The company reports on direct and indirect greenhouse gas emissions and climate risk, and uses recognized standards for reporting greenhouse gas emissions and climate risk.

These expectations, which were presented in the white paper in October 2022 and discussed in the Storting in February 2023, are communicated to Equinor's board of directors and are followed up in the ownership dialogue the state has with the company.

In addition to the expectations set out by the Ministry for Trade, Industry & Fisheries, Norway's Climate Change Committee published its recommendation in October 2023 that the Government plan for:

'the final phase of Norwegian petroleum activities', and in the first instance implements a 'permanent cessation of exploration activities without a direct connection to existing infrastructure, and that no decisions are made to build new infrastructure that locks us to emissions towards and beyond 2050'.

While these recommendations are still being debated in Parliament, they point to the regulatory risks of Equinor's current strategy18.

In summary, a failure to abide by Equinor's own commitments, Government expectations and independent assessments of Paris Alignment, could result in adverse regulatory and/or legal action, harming shareholders.

1.3 Risks to economic growth and market returns

Beyond the capital at risk in Equinor, investors are collectively exposed to the harmful consequences global warming is expected to bring across all sectors and countries19. Equinor's shareholders, therefore, have a direct interest in acting to mitigate the market-wide risks to capital that Equinor's strategy exacerbates.

While the potential damage is outlined in detail by the Intergovernmental Panel on Climate Change (IPCC) in its comprehensive Assessment Reports, mainstream models generally leave out the most dangerous consequences, such as tipping points and socioeconomic responses to extreme weather events20. Regulators are now underlining the need to recognise these more severe consequences and, importantly, that these impacts need addressing today21.

1. Norway's Climate Committee Official Report "The transition to low emissions - climate policy choices towards 2050",
   October 2023:https://files.nettsteder.regjeringen.no/wpuploads01/sites/479/2023/10/Pressemelding_engelsk.pdf
2. See for instance the Intergovernmental Panel on Climate Change's 6th Assessment Report "Impacts, Adaptation and vulnerabilities", 2022. https://www.ipcc.ch/report/sixth-assessment-report-working-group-ii/
3. See Exeter University and Institute and Faculty of Actuaries, "The emperor's new climate scenarios", July 2023 on modelling flaws (https://actuaries.org.uk/media/qeydewmk/the-emperor-s-new-climate-scenarios.pdf)
4. See NGFS, "Conceptual Note on short-term climate scenarios", October 2023
   (https://www.ngfs.net/sites/default/files/medias/documents/conceptual-note-on-short-term-climate-scenarios.pdf)

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Central banks are increasing efforts to mitigate climate-related financial stability risks, which left unaddressed could result in dangerous volatility and impede long-term investment returns across the market22.

2. Equinor's strategy is not consistent with the Paris Agreement goals

While we welcome Equinor's commitment to support the Paris Agreement goals, the current strategy does not appear to be consistent with this pledge. We outline why below.

2.1 Equinor's 2022 Transition Plan shows its targets fall short of a 1.5°C pathway

While the Transition Plan sees Equinor reaching net zero scope 1 to 3 emissions by 2050, the pathway involves higher emissions in all earlier years (see chart below). Consequently, we would expect the total carbon budget Equinor uses under its Transition Plan would exceed that consistent with a 1.5°C temperature outcome.

Source: Equinor, "Transition Plan", 2022, p. 12

2.2 Plans to maintain oil and gas production to 2035 run contrary to the Paris alignment

Following its 2022 Transition Plan, Equinor set out at its CMU 2022 that it expected to see its oil and gas production peak in 2026, falling back to 2021 levels by 2030 and then continuing on a downward trajectory23.

1. See the Financial Stability Board's work on dangers to financial stability from climate change:https://www.fsb.org/wp- content/uploads/P231120.pdf;European Central Bank's Thematic Review on climate risks: https://www.bankingsupervision.europa.eu/ecb/pub/pdf/ssm.thematicreviewcerreport112022~2eb322a79c.en.pdf
2. https://cdn.sanity.io/files/h61q9gi9/global/b7328d435529d45013c8714c9c50eeb1e6c2520d.pdf?all-presentations-4q-
   21-cmu-22-equinor-2.pdf; "Equinor is preparing for an expected gradual decline in global demand for oil and gas from around 2030 onwards. Value creation, not volume replacement, is and will be guiding Equinor's decisions. In the longer term, Equinor expects to produce less oil and gas than today." Statement at launch of 2020 Net Zero commitment: https://www.equinor.com/news/archive/20201102-emissions

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More recently, there has been a shift towards maintaining production to 203524. This is driven by stronger production expectations from the Norwegian Continental Shelf (NCS) alongside 15% increase in volumes from International Exploration & Production 2024-203025.

Source: Equinor, CMU, Feb 2024

This extended production profile would move Equinor further away from a 1.5°C trajectory as defined by the IEA26. For oil, the IEA concludes that the decline in production must start immediately; for gas production must start falling in the next two to three years (see charts below).

1. See for instance comments by the CEO in Q4 and full-year 2023 results presentation: https://www.equinor.com/news/equinor-fourth-quarter-and-full-year-2023-results;https://cdn.equinor.com/files/h61q9gi9/global/801de790f1baafa6ae0984101543cf95fbb769ab.pdf?cmu-2024-speaker-notes-equinor.pdf
2. CMU, Feb 2024
3. IEA, "The Oil and Gas industry in Net Zero Transitions", November 2023;https://iea.blob.core.windows.net/assets/41800202-d427-44fa-8544-12e3d6e023b4/TheOilandGasIndustryinNetZeroTransitions.pdf

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