Oil and gas giants are increasingly selling off dirty assets to private firms, amplifying concerns that the fossil fuel industry’s traditional dealmaking is not compatible with a net-zero world.

It comes at a time when oil and gas majors are under immense pressure to set short and medium-term targets in line with the goals of the landmark Paris Agreement. It is widely recognized that this accord is critically important to avoid the worst of what the climate crisis has in store.

Research published last week by the non-profit Environmental Defense Fund shows how oil and gas mergers and acquisitions, which may help energy giants execute their transition plans, do not help to cut global greenhouse gas emissions.

To be sure, the burning of fossil fuels, such as coal, oil and gas, is the chief driver of the climate crisis and researchers have repeatedly stressed that limiting global heating to 1.5 degrees Celsius will soon be beyond reach without immediate and deep emissions reductions across all sectors.

EDF’s analysis of over 3,000 deals between 2017 and 2021 shows how flaring and emissions commitments disappear when tens of thousands of wells are passed from publicly traded companies to private firms that have no oversight or reporting requirements to shareholders.

These same often obscure private companies tend to disclose little about their operations and can be committed to ramping up fossil fuel production.

Such deals are growing in both number and scale, EDF’s research says, climbing to $192 billion in 2021 alone.

“These transactions can make it look as though sellers have cut emissions, when in fact pollution is simply being shifted to companies with lower standards,” said Andrew Baxter, director of energy transition at EDF.

“Regardless of the sellers’ intent, the result is that millions of tons of emissions effectively disappear from the public eye, likely forever. And as these wells and other assets age under diminished oversight, the environmental challenges only get worse,” he added.

The report says the surge in the number and scale of oil and gas dealmaking has coincided with growing fears among investors about losing the ability to assess company risk or hold operators accountable to their climate pledges.

It also suggests implications for some of the world’s largest banks, many of which have set net-zero financed emission targets. Since 2017, five of the six largest U.S. banks have advised on billions of dollars worth of upstream deals.

As a result, the analysis calls into question the integrity of Big Oil and Wall Street’s commitment to the planned energy transition, a shift that is vital to avoid a cataclysmic climate scenario.

EDF’s analysis used industry and financial data on mergers and acquisitions to track changes in how emissions may have changed after a sale. It is thought to be the first time that comprehensive data on how oil and gas majors transfer emissions to private buyers have been collated.

In one example, Britain’s Shell, France’s TotalEnergies and Italy’s Eni — all publicly held firms with net-zero targets — sold off their interests in an onshore oil mining field in Nigeria last year to a private-equity backed operator.

Between 2013 and the point of transfer, almost no routine flaring had occurred under the stewardship of TotalEnergies, Eni and Shell, the top seller of assets from 2017 through to 2021, according to the EDF’s analysis.

Almost immediately thereafter, however, flaring dramatically increased. The case study was said to highlight the climate risks stemming from upstream oil and gas transactions.

Gas flaring is the burning of natural gas during oil production. This releases pollutants into the atmosphere, such as carbon dioxide, black carbon and methane — a potent greenhouse gas.

The World Bank has said ending this “wasteful and polluting” industry practice is central to the broader effort to decarbonize oil and gas production.

A spokesperson at Eni said the company does not consider asset sales as a tool to reduce emissions and the firm’s strategy to reach carbon neutrality by the middle of the century is based on a set of measures that includes zero flaring by 2025.

“Questions regarding specific asset sales should be directed to the operator,” they added. “In general terms, all asset sales contracts must comply with local regulations, they include clauses related to the respect of human rights, and they are subject to Government approval.”

CNBC has contacted Shell and TotalEnergies to comment on EDF’s analysis.

Andrew Logan, senior director of oil and gas at nonprofit Ceres, told CNBC that EDF’s research shows there has been something of a “wink wink, nod nod approach” to transferred emissions to date, whereby energy majors sell off high-polluting assets without worrying too much about whether the purchaser is going to do what they are supposed to.

“But what’s interesting is that those private equity firms tend to be backed by public money. You know, it is public pensions funds that are the partners in those firms so there is leverage there,” he added.

Larry Fink, CEO and Chair of BlackRock, the world’s largest asset manager, sharply criticized oil and gas giants for selling out to private firms during the COP26 climate conference in Glasgow, Scotland, last year.

Fink said the practice of public disclosed companies selling high-polluting assets to opaque private enterprises “doesn’t change the world at all. It actually makes the world even worse.”

Ceres’ Logan said that an important part of responsible asset transfer must be reckoning with the costs of shutting down wells at the end of their lives. In North America, for example, he highlighted the “huge problem” with so-called “orphan wells.”

These are oil and gas wells abandoned by fossil fuel extraction industries which can end up in the hands of companies with no ability or intention of cleaning them up.

“It is interesting to look at how different the asset sale process is in most of North America compared to the assets in the Gulf of Mexico because, in the Gulf of Mexico, there are federal rules that basically say if you sell an asset and the next company — or the next, next, next company doesn’t clean it up — that liability comes back to you,” Logan said. “So, you have a very strong interest in picking your partners wisely and making sure they have the money to clean the well.”

In July last year, some of the world’s largest corporate emitters were ordered to pay hundreds of millions of dollars as part of a $7.2 billion environmental liabilities bill to retire aging oil and gas wells in the Gulf of Mexico that they used to own. The case was thought to be a watershed moment for future legal battles over cleanup costs.

“I think we need something like that in the rest of the world where there’s an acknowledgment that that liability has to travel. It has to be paid for and we have to be aware of that at every stage of the process,” Logan said.

The EDF report says coordinated action from asset managers, companies, banks, private equity firms and civil society groups can help to reduce risks from oil and gas mergers and acquisitions.

“It’s important to have this research because when we engage with companies in the sector, it is definitely a topic on the agenda,” said Dror Elkayam, ESG analyst at Legal & General Investment Management, a major global investor and one of Europe’s largest asset managers.

When asked whether there is a recognition among oil and gas majors that they should be at least partly responsible when transferring assets, Elkayam said: “So, that’s the point of debate, right?”

“I think we will definitely benefit from a greater level of disclosure on these assets,” he told CNBC via video call. This might include the emissions associated with these assets or the extent to which the firm’s climate targets will be met by asset disposal when compared to organic decline. “This is an important area to scope out, I would say,” Elkayam said.