More than 20 global investors in partnership with the Institutional Investors Group on Climate Change (IIGCC) and the Transition Pathway Initiative (TPI) have engaged with leading oil and gas companies, including BP, Shell and Total, to set out 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 several companies within the oil and gas sector have set net zero targets and have already started developing transition plans, analysis by TPI and others 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 International Energy Agency’s (IEA) 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.
Adam Matthews, chair of the investor-company process to develop the standard and chief responsible investment officer at Church of England Pensions Board, said: “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.”
He said that assessing the credibility and adequacy of company transition plans is a “technically complex task.”
The group of investors – which has collective assets worth $10.4trn (€8.8trn) – believes that developing this oil and gas sector net zero standard will encourage the consistency of reporting.
Matthews said that “it also identifies the strategies that oil and gas companies may include in their net zero transition plans”.
He added: “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.”
The investor group has identified a number of options that can help 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 said, adding that 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,” said Stephanie Pfeifer, chief executive officer of IIGCC.
She noted that the standard will offer a “reset moment” for investors and oil and gas companies 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.
Bruce Duguid, head of stewardship at EOS, Federated Hermes, strongly supports piloting the oil and 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.
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 oil and gas companies, including BP, Eni, Repsol, Shell and Total, and plan for wider roll out across the sector.