A group of global investors, with a collective US$10.4 trillion in assets under management, have engaged the likes of BP and Shell to spell out expectations on how to transition to net-zero.
Detailing the course of actions for oil and gas companies, the ‘Net-Zero Standard for Oil and Gas’, published today, September 15, 2021 outlines what oil and gas companies should do and how actions taken should be reported to inform investors.
That said, the oil and gas standard focuses on creating a framework that provides to investors, an understanding of how different oil and gas companies are targeting net-zero. With this standard, investors can compare levels of ambition and targets, capital expenditure, governance and disclosure, among others.
“While the expectations were developed from analysis of, and feedback from, European oil and gas companies with ambitions to lead the transition, the Standard aims to be more broadly applicable.
“It aims to cover both integrated and E&P companies, all potential decarbonization strategies and be applicable to companies based in all regions. Many of the recommended actions and disclosures should also be applicable to National Oil Companies (NOCs).”
Net zero Standard for Oil and Gas Report
Oil and gas companies’ targets do not align with net zero ambitions
Essentially, in the last 18 months, major oil corporations have come out to outline their long-term climate ambitions, with many pitching their new targets in line with achieving ‘net zero’. However, questions have been raised about the credibility of their commitments, the standard acceptable for net zero commitment, among others.
According to the report, a May 2020 analysis conducted by Transition Pathway Initiative (TPI) compared the ambitions of European oil and gas companies to one another as well as to sectoral emissions benchmarks derived from the International Energy Agency (IEA) data.
The analysis highlighted the various ways those commitments were expressed and concluded that “none of the targets were, in fact, aligned with net zero.”
So far seven companies— Glencore, Anglo American, Shell, Repsol, Total, Eni and Equinor—have set climate targets in line with the Nationally Determined Contributions (NDCs) of places they are headquartered.
National climate actions to lead to 3 degree Celcius of warming
Nonetheless, the TPI has long taken the stance that current national climate commitments will result in at least 3 degree Celcius of warming.
The UN’s Environment Programme (UNEP) has calculated that 3.2 degree Celsius of warming is likely given current levels of national action.
Based on these considerations, was the standard developed by the Institutional Investors Group on climate Change (IIGC), the Transition Pathway Initiative (TPI) and more than 20 global investors.
Chair of the Investor-Company process and chief investment officer of the Church of England Pensions Board Adam Matthews commented:
“In order for investors to play their role, we need to be able to meaningfully compare different company strategies whilst recognizing that there is no one size fits all approach. Assessing the credibility and adequacy of company transition plans is a technically complex task.
“Our aim in developing this Oil and Gas Sector Net Zero Standard is to allow us to do that. It will encourage the consistency of reporting that we need to make this comparison. And it also identifies the strategies that oil and gas companies may include in their net-zero transition plans.
“Ultimately, this is intended to create a level playing field in transition plan reporting so that we can understand, compare, contrast, and robustly perform our role as long term stewards of our assets.”
Adam Matthews, Chair of the Investor-Company process
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Fascinating report! The global energy community is indeed facing special moments