$10 Trillion of Investors Ask Oil & Gas Companies to Second Guess Timid Politicians on Carbon Pricing (2)

By Mathew Carr

A large group of investors have backed a set of awkward standards for oil and natural gas companies, asking them to assume politicians get braver on providing higher carbon prices.

One of the 10 standards requests that companies assume higher carbon prices/taxes, which will force companies to cut back the volume of capital they allocate to expanding in crude oil and gas, according to an outline of the standards on the website of the Institutional Investors Group on Climate Change.

Here is just one of 10 actions required to meet the net-zero standard.

“–Companies should confirm that their investment strategy is aligned with net zero and set out the assumptions (oil price, carbon tax, depletion rates etc) underpinning that conclusion.
–Companies should disclose a forward-looking capex budget (at least three
years), specifying upstream and exploration elements. Additional disclosure
on breakeven costs for new projects should be provided if targeted production.
–declines are inconsistent with net zero (see above). Investment in CCUS and
other CDR measures should also be specified
–Companies opting to invest in green energy should specify “green” capex.”

Only about one fifth of the world’s total emissions of greenhouse gas face carbon prices. Polluters are not paying for most of the damage they are causing. Meanwhile, investors are trying to pick which companies will suffer the least as politicians face up to the crisis and impose incentives and penalties onto the climate polluters. It’s devilishly difficult to do.

In order for investors to play their role, we need to be able to meaningfully compare different company strategies whilst recognising that there is no one size fits all approach. Assessing the credibility and adequacy of company transition plans is a technically complex task.” explains Adam Matthews, Chair of the Investor-Company process to develop the Standard and Chief Responsible Investment Officer, Church of England Pensions Board“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.

No More Fossil Fuels Needed?

See this link to IIGCC standards — see page 5: https://www.iigcc.org/download/iigcc-net-zero-standard-for-oil-and-gas/?wpdmdl=4866&refresh=6140cea4a40a01631637156

See link above

Investors are tackling the climate crisis in various ways. See this tweet for another example:

(Updates with tweet, key page outlining the actions)

Press release is here:
PRESS RELEASE

Investors representing USD 10.4 trillion set out standard for net zero transition plans in the oil and gas sector

15.09.21

  • Net zero standard sets minimum expectation for what must be included in net zero transition plans from oil and gas companies, to create a level playing field in corporate reporting and meet investor expectations for credible and comparable company net zero transition plans.
  • Publication of the standard comes following a series of high level dialogues between leading investors and major oil and gas companies, convened under the Institutional Investors Group on Climate Change (IIGCC) and informed by the Transition Pathway Initiative (TPI).
  • The standard stresses need for comprehensive absolute and intensity emissions reduction targets, which cover all material emissions, as well as alignment of capital expenditure and production plans with a net zero target. It acknowledges ‘winding-down’ as a legitimate strategy, as well as diversifying energy offerings or working through a company’s value chain to re-shape demand.
  • In a major step, the standard will now be piloted with a core group of leading oil and gas companies, including BP, Eni, Repsol, Shell and Total to trial implementation and prepare for wider adoption across the sector, and consider integration into TPI and Climate Action 100+ analysis.

Together with IIGCC and TPI, more than 20 leading global investors with collective assets of USD 10.4 trillion have engaged with leading oil and gas companies, including BP, Shell and Total, to inform a set of expectations for the oil and gas sector in aligning to net zero. The ‘Net Zero Standard for Oil and Gas’, published today, outlines the actions that oil and gas companies should be taking and how they should be reporting on those actions so that investors have a level playing field to effectively evaluate their progress.

While a number of companies within the oil and gas sector have set net zero targets and started developing transition plans, analysis by TPI and others[1] has highlighted significant variation in the extent and scope of these commitments. Faced with increasingly urgent timelines highlighted by the recent IPCC report on climate change and the IEA’s analysis on a pathway to net zero for oil and gas companies, investors need companies to demonstrate clear and credible net zero plans and a mechanism for assessing whether they are fit for inclusion in net zero portfolios.

In order for investors to play their role, we need to be able to meaningfully compare different company strategies whilst recognising that there is no one size fits all approach. Assessing the credibility and adequacy of company transition plans is a technically complex task.” explains Adam Matthews, Chair of the Investor-Company process to develop the Standard and Chief Responsible Investment Officer, Church of England Pensions Board“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.

There is no single or straightforward path to achieving a net zero target. However, there are a number of options available which can come together to form a credible plan, including:

  • Diversifying into new areas of business, particularly renewable energy;
  • Working with customers to transition to low carbon energy;
  • Developing technology and solutions to reduce emissions; and
  • Ceasing exploration and running existing assets down to return cash to investors.

The standard sets a framework to better allow investors to compare different strategies pursued by oil and gas companies. It specifically addresses areas such as ambition, targets, decarbonisation strategy, capital expenditure, governance and disclosure. It is intended to supplement the economy-wide framework developed as part of the Climate Action 100+ Net-Zero Company Benchmark, with specific guidance for the oil and gas sector.

The past 18 months have seen enhanced climate ambition from a number of leaders within the oil and gas sector, with many suggesting that their targets are consistent with ‘net zero’. However, analysis shows that for many there is still work to do to get on track to achieve net zero by 2050 and meet the goals of the Paris Agreement.” adds Stephanie Pfeifer, Chief Executive, IIGCC. “This net zero standard is intended to support investors in understanding the credibility of companies’ commitments and transition plans so that they can engage effectively with the sector, especially those companies that are lagging behind. It offers a reset moment for investors and oil and gas companies alike to get behind a shared understanding of what needs to be included in a transition plan within the oil and gas sector in order to allow for effective comparisons of investor evaluations.”

“As recent reports by the IEA and IPCC have made clear, a net-zero trajectory is imperative and the energy sector must act now. IIGCC’s Net Zero Standard for Oil and Gas Companies provides capital markets with a useful set of principles to compare progress across the board, helping us support the leaders and to intensify efforts with the laggards.” adds Sora Utzinger, Senior ESG Analyst, Aviva Investors.

“The oil & gas sector is vital to the transition to net-zero, with many possible Paris-aligned strategies. We strongly support piloting of the oil & gas standard to help the industry to clearly understand investor expectations across a range of strategies and the various types of targets and performance metrics to successfully demonstrate Paris-alignment.” adds Bruce Duguid, Head of Stewardship, EOS at Federated Hermes.

Following the publication of the standard, IIGCC and lead investors will now move forward with a pilot programme to trial implementation with a core group of leading oil and gas companies, including BP, Eni, Repsol, Shell and Total, and plan for wider roll out across the sector.

– ENDS –

Notes to editor

  1. See here for a full version of the ‘Net Zero Standard for Oil and Gas’, developed in partnership with investors, oil and gas companies and the Transition Pathway Initiative (TPI).
  2. Launched in December 2017, Climate Action 100+ is coordinated by five investor networks: Asia Investor Group on Climate Change (AIGCC); Ceres; Investor Group on Climate Change (IGCC); Institutional Investors Group on Climate Change (IIGCC) and Principles for Responsible Investment (PRI).

About IIGCC

The Institutional Investors Group on Climate Change (IIGCC) is the leading European membership body enabling the European investment community in driving significant and real progress by 2030 towards a net zero and resilient future. IIGCC’s 300 members representing €37 trillion AUM are in a position to catalyse real world change through their capital allocation decisions and engagement with companies and the wider market as well as through their policy advocacy. IIGCC has three clear areas of focus: policy, investor practices and corporate engagement reflecting the key investor levers for change. The programme teams work in strategic partnership with investors supporting, enabling and showcasing their role in the realisation of the transition to net zero in support of the goals of the Paris Agreement. For more information visit http://www.iigcc.org and @iigccnews.

About TPI

The Transition Pathway Initiative (TPI) is a global initiative led by asset owners and supported by asset managers. Aimed at investors and free to use, it assesses companies’ preparedness for the transition to a low-carbon economy, supporting efforts to address climate change. Launched in 2017, it is rapidly becoming the ‘go-to’ corporate climate action benchmark.

TPI provides robust, independent research which empowers investors to assess the alignment of their portfolios with the goals of the Paris Agreement and to drive real world emission reductions through our actions. Asset owner led, the Transition Pathway Initiative (‘TPI’) is the leading corporate climate action benchmark.

[1] Analysis undertaken by TPI, Carbon Tracker and the IEA amongst others.

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