By Clara Nwachukwu
The United Nations-backed, Net-Zero Asset Owner Alliance (NZAOA), yesterday, set out new guidance for members to align their oil and gas policies with established 1.5 degree Celsius pathways.
NZAOA, constituted of members from the banking, insurance, and investment sectors with $11 trillion of assets under management, also called on consumers and suppliers of oil and gas to set Scope 1, 2, and 3 greenhouse gas emission reduction targets
In the members’ opinion, 1.5°C pathways “cannot be achieved if there are new upstream infrastructure investments in new oil and gas fields.”
In a statement yesterday, the group said: “This Position on the Oil and Gas Sector underscores the Alliance’s recognition that unabated climate change poses significant economic and investment risks.”
It insisted that “Members are committed to mitigating these systemic risks on behalf of their clients and beneficiaries and, as such, should consider how economies can transition away from dependency on activities that contribute to climate change, including the combustion of oil and gas.”
The Alliance noted that its view on “this essential transition away from oil and gas dependency is guided by the Intergovernmental Panel on Climate Change’s (IPCC’s) 1.5°C no or limited overshoot scenarios, as well as on the One Earth Climate Model (OECM), and the International Energy Agency (IEA) Net Zero by 2050 Roadmap (NZE 2050).”
NZAOA is committed to transitioning their investment portfolios to net-zero greenhouse gas emissions by 2050, a development that has forced some banks to announce tougher rules on the financing of fossil fuels in recent times.
Members should consider how economies can transition away from dependency on activities that contribute to climate change, including the combustion of oil and gas.
Expectations of investors
Allianz SE Board Member and NZAOA Chair, Günther Thallinger, was quoted as saying: “The world must achieve a net-zero economy by 2050, with a maximum 1.5°C of temperature rise. This is necessary to avoid the most extreme effects of climate change.
“How energy is provided and consumed must therefore dramatically change. This includes the need to phase out non-renewable sources like oil and gas in many, if not most, of its current uses.”
The Alliance further argued that “The numerous challenges of transitioning to a low-carbon economy are best mitigated by a position that considers all available options for concurrently reducing the supply and demand of oil and gas and in overall economic systems.”
Members also expect producers, consumers, policymakers, and investors to tackle this challenge by balancing the supply of oil and gas on the one hand, and society’s demand for affordable and reliable energy on the other.”
“On private asset investment in new unabated oil and gas infrastructure, investors, including Alliance members, shall align with credible 1.5°C net zero scenarios,” the statement said.
It continued: “Alliance members are expected to adopt policies that align with these positions on infrastructure investments, or show how existing policies already align.
“The Alliance does recognise that some net-zero committed investors have already put in place policies to cease financing of all oil and gas infrastructure.
“Others may choose to continue to invest in new oil and gas infrastructure in exceptional circumstances, where alternatives for affordable and reliable alternatives are not yet viable or where government-issued regional/national 1.5°C pathways and/other regional specificities may influence portfolio decisions.
“In all cases, the Alliance strongly advises against investment in long-lived assets that are likely to be stranded in a 1.5°C -aligned transition.”
Other specific guidelines
Other specific guidelines for investors listed in the paper focus on direct stewardship for action—aligning science-based portfolio allocation and stewardship decisions with individual climate ambitions—as well as indirect options like supporting policy and regulatory efforts that address climate change.
For asset owners in particular, the Alliance emphasises the need for engagement with the asset manager community so that climate action is recognised as supporting the best interests of managers’ clients.
Also, oil and gas producers and companies in intensive fossil fuel-using sectors are expected to set science-based, absolute- and intensity-based emissions targets.
Such targets are expected to cover Scope 1, 2, and 3 emissions, in line with science-based, no- or limited-overshoot, 1.5°C-aligned pathways established by IPCC, OECM or IEA NZE 2050 roadmaps.
The Alliance acknowledges that “a rapid scaling of zero-carbon energy, as well as the development of enabling technologies and policies, is needed to deliver a significant reduction in oil and gas demand.
“These scenarios also note that no new oil and gas fields must be developed to meet this declining demand.”
Majority of the Alliance members consider the current oil and gas demand level is not yet in line with these scenarios when engaging and setting expectations for these companies, while others expect more immediate action, including no new oil and gas fields.
Therefore, Alliance members should continue to set clearer expectations for them to set targets in line with the 1.5°C pathways, aligning their strategies and activities to be congruent with these targets.
Alliance members should also pursue their own engagement strategies and other corporate activities to support reduced demand for oil and gas and increased supply of zero-carbon alternatives.
Finally, policymakers and regulators are expected to initiate “systemic interventions that can facilitate oil and gas demand reductions and increase alternative energy supply through economy-wide actions, such as implementing well designed and just carbon-pricing mechanisms and funding innovative technologies.”
They added that “These actions can help to incentivise decarbonisation, to unlock much-needed innovation, and to effectively harness the power of the capital markets by pricing externalities into the system and facilitating a transition to net zero.”
