Upstream oil switching to run-off mode: investor

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Yesterday was a very significant day for responsible investors. The Financial Times along with many others including CNN cover the chaotic Shell AGM and comments by Laura Hillis representing the Church of England Pensions Board.

Whilst Laura was at the AGM I spoke at two large events alongside fellow asset owner Eva Halvarsson AP2 CEO at the FT live Moral Money Summit and Faith Ward Brunel Pension Partnership Limited CRIO at the CFA UK course. Obviously different focus of each event, but the points I made were as follows:

1. We are at a crossroads in engagement with the oil & gas sector. We have engaged for nearly 10 years and intensely for 5 years as part of Climate Action 100+. The change in direction by oil and gas companies over the past year chasing short-term profit maximisation has caused a fundamental break with the long-term interests of pension funds. That pursuit will delay the transition and will negatively impact not only our portfolios but the chances of the world achieving the goals of the Paris Agreement. The vote at Shell also exposed a gap between how fund managers interpret the long-term interests of their pension fund clients. This is something the UK Asset Owner Roundtable is intending to consider as a number of us have been in meetings where oil & gas companies have clearly said they are being encouraged down this short-term path by their largest fund managers.

2. Engagement with O&G should no longer be a top priority of CA100+. We should focus on demand side companies and how quickly they can exit their dependency on oil and gas. Alongside emissions targets we need oil & gas exit targets and plans we can finance. If big listed oil & gas companies no longer believe they can make a business out of renewables then the investor expectation should simply be they stop spending shareholder funds on the upstream and commit to wind down in line with the Net Zero Oil and Gas Standard.

3. Investors must work national up supporting emerging markets and developing countries achieve ambitious targets to transition/build their energy systems. Where there is any dependency on gas lets understand it in the national context. We need to support whole system transition from the assets that needs to be closed, workforces supported, to the new grids and renewable systems. Investors need to better understand transition debt and work collaboratively to finance EM. There is no Paris Agreement without doing so.

4. Time to get serious on public policy advocacy. Informed by the demand side and emerging market focus, lets explore what a phased moratorium on oil & gas looks like.

5. The Global Investor Commission on Mining 2030 is vital and key to how we can support this sector to provide transition minerals. We cannot have a transition that leaves a legacy of social and environmental discord but instead has benefited communities and countries to flourish.

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