A report calls for the oil and gas sector to make significant reductions in greenhouse gas emissions. This was released by the Net-Zero Asset Owner Alliance to provide new guidance to its members on their approach to the oil and gas industry. The alliance members, which include insurers, pension funds and other institutional investors with more than $9 trillion in assets, are calling on oil and gas consumers and suppliers to set greenhouse gas emission reduction targets for Scopes 1, 2 and 3, while aligning their operational activities with established 1.5°C paths.
Report highlights significant economic and investment risks in the oil and gas sector
The Alliance’s position on the oil and gas sector highlights the recognition of the significant economic and investment risks associated with climate change. Alliance members are committed to mitigating these systemic risks on behalf of their clients and beneficiaries. They need to think about how economies can move away from dependence on activities that contribute to climate change, including the burning of oil and gas.
The Intergovernmental Panel on Climate Change (IPCC) scenarios have established that limiting global warming to 1.5°C above pre-industrial levels is necessary to avoid the most severe effects of climate change. The Alliance’s position on the oil and gas sector aligns with these scenarios. The Alliance also builds on the One Earth Climate Model (OECM) and the International Energy Agency (IEA) Net Zero by 2050 Roadmap (NZE 2050), which envisions a global energy transition to net zero carbon emissions by 2050. A position that considers all available options for simultaneously reducing oil and gas supply and demand, as well as in the overall economic systems, better mitigates the many challenges of the transition to a low-carbon economy.
The report specifies its expectations of investors regarding their behavior in the oil and gas sector
Investors, including Alliance members, must align with credible scenarios of net zero to 1.5°C. These new investments in new oil and gas fields would prevent limiting global warming to 1.5°C above pre-industrial levels and avoid the most severe effects of climate change. The expectations of investors are therefore clear: policies must be adopted that align with the Alliance’s positions on infrastructure investment.
The Alliance recognizes that some net zero investors have already put policies in place to stop financing all oil and gas infrastructure. Others may choose to continue to invest in new oil and gas infrastructure in exceptional circumstances, where affordable and reliable alternatives are not yet viable or where specific regional/national trajectories warrant.
The Alliance’s approach is to consider all available options to simultaneously reduce the supply of and demand for oil and gas in global economic systems. The Alliance therefore has expectations for producers, consumers, policy makers and investors.
Clear expectations for companies in the oil and gas sector
Alliance members expect companies to set science-based emissions targets consistent with 1.5°C trajectories. The alliance calls on oil and gas producers to set emissions targets that cover Scope 1, 2 and 3 emissions. Alliance members encourage companies to align their strategies and activities to meet these goals. The Alliance also encourages companies to pursue their own engagement strategies and other corporate activities to support the reduction of oil and gas demand and the increase in supply of carbon-free alternatives.
Policies at the heart of the energy transition
Policymakers and regulators also have a role to play in the fight against climate change. The Alliance encourages policymakers to take economy-wide action to facilitate declines in oil and gas demand and increase the supply of alternative energy. Actions such as implementing well-designed and fair carbon pricing mechanisms and financing innovative technologies can help encourage decarbonization, unlock much-needed innovation and effectively harness the power of capital markets.
In sum, the Net-Zero Asset Owner Alliance has released new guidance to help institutional investors mitigate the economic and investment risks of climate change. The Alliance encourages the cessation of funding for all oil and gas infrastructure, while they call on oil and gas producers to set emissions targets. The Alliance’s position on the oil and gas sector recognizes the importance of the transition to a low-carbon economy, which must be achieved by considering all available options for reducing the supply of and demand for oil and gas in global economic systems.
