International oil companies, or IOCs, face increasing pressure from investors, regulators, and the broader public to reduce greenhouse gas emissions and accelerate the transition to clean energy. By contrast, investors, regulators and others have paid far less attention to national oil companies, or NOCs. These state-owned titans constitute half of the world’s oil and gas production, control two-thirds of global reserves, and often serve as the largest entities in their home economies. If the world is to meet the goals of the Paris Agreement, NOCs must begin decarbonizing their activities.

Despite the seemingly closed-off nature of many NOCs, investors will play a critical role in directing and incentivizing this energy transition. For example, Russia’s 2022 invasion of Ukraine showcased just how exposed investors are to geopolitical risks borne by state-owned Rosneft and Gazprom, with the latter suspended from trading on the London Stock Exchange in March 2022. This brief shows that both the extent of investor exposure and the degree of investors’ potential influence over the fates of NOCs are far greater than investors themselves may perceive.

Investors are financially exposed to a range of NOC activities. This exposure both opens avenues for investor influence and creates a strong incentive for investors to use it. Three cases present the highest level of investor exposure, but also the most direct opportunities for investor influence. First, NOCs can be partly shareholder-owned like Equinor and Petrobras. Others have issued bonds like Pemex and the Abu Dhabi National Oil Company. Last, a number of NOCs require outside technical assistance and financing, especially on frontier oil and gas projects.

In addition, investors are exposed to NOCs through their holdings in banks like JPMorgan Chase, Citi and Bank of America, which have financed hundreds of billions of dollars per year to the larg- est NOCs. Nearly all NOCs also partner with foreign firms for exploration and development. With IOCs like Shell and BP withdrawing from many NOC partnerships, investor-owned service com- panies like Schlumberger and Baker Hughes have filled the vacuum. Even though these firms are much smaller than the IOCs they are replacing, they are nevertheless becoming an increasingly relevant route for investors in terms of risk exposure to, and influence on, NOC activities.

This brief outlines immediate steps that investors can take to encourage NOCs to decarbonize and contextually reduce investors’ own exposure risk to NOCs.

We encourage investors to:

• Direct NOCs to adhere to climate disclosure requirements to improve their trans- parency and prevent offshoring of emissions by IOCs to NOCs.

• Develop and apply ESG frameworks to NOCs similar to those increasingly applied to IOCs to reveal the myriad risks faced by investors, financial actors, and opera- tional firms partnering with NOCs.

• Call on banks to refrain from financing new oil and gas expansion projects by NOCs.

Each of these constitute first but important steps toward more substantive actions by investors for NOCs to limit new oil and gas infrastructure expansion—in line with Paris Agreement goals and industry-based emissions scenarios—and begin to substantially decarbonize their activities.