Oil and gas companies are facing competition from renewable energy and electric vehicles, a global campaign against the use of plastics and increasingly stringent climate targets. In the face of these challenges, shareholders want them to prioritize returns to investors rather than endless growth.

Most oil and gas companies are jeopardizing shareholder returns  by rewarding bosses for endlessly chasing growth in a world where pressure to meet climate targets and sharp falls in renewables costs are set to eat into future demand , finds a report from The Carbon Tracker Initiative, a not-for-profit financial think tank that seeks to promote a climate-secure global energy market by aligning capital markets with climate reality.

And the group warns that companies may have to shrink in order to offer the highest returns to shareholders . It analyzed the link between remuneration policies and total shareholder returns after the 2014 crash and found companies that rewarded growth were outperformed by those that rewarded financial returns.

From a basket of 18 US exploration and production companies, in the two years from mid-2014 total shareholder return at the three companies with the lowest incentives for growth (determining 0%-20% of annual bonus) was 7% p.a. higher than at the six companies with strongest incentives for growth (determining 50%-100% of annual bonus).

Carbon Tracker has previously warned that global demand growth for oil is set to weaken then start falling during the 2020s, and its new report, Paying with fire: How oil and gas executives are rewarded for chasing growth and why shareholders could get burned, warns that companies that try to maximize production are at risk of overinvesting and wasting money on projects that deliver poor returns and destroy value.