The UN-backed Net-Zero Asset Owner Alliance – a member-led initiative with over $11trn in assets under management – is calling for members, which include many of the world’s largest insurers, reinsurers and brokers, to set exclusion policies for new oil and gas extraction capacity.
The Alliance has published a new position statement where it outlines new guidance for oil and gas investments and calls on consumers and suppliers of oil and gas to set Scope 1, 2, and 3 greenhouse gas emission reduction targets while aligning their operations activities, including capital expenditure, with established 1.5°C pathways.
In its Position on the Oil and Gas Sector paper, the Alliance recognizes that unabated climate change poses significant economic and investment risks.
It stated that, as members are committed to mitigating these systemic risks on behalf of their clients and beneficiaries they should consider how economies can transition away from dependency on activities that contribute to climate change, including the combustion of oil and gas.
Alliance chair Günther Thallinger said that how energy is produced and consumed must “dramatically change” in all key 1.5C scenarios, including the International Energy Agency (IEA) Net Zero by 2050 Roadmap (NZE 2050), the One Earth Climate Model (OECM) and the 1.5C scenarios used by the Intergovernmental Panel on Climate Change (IPCC).
Thallinger said: “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.
“This challenge must be tackled while balancing the supply of oil and gas on the one hand, and society’s demand for affordable and reliable energy on the other. Investors want to support this transition and the Alliance Position on the Oil and Gas Sector describes how our members wil do that.”
On private asset investment in new unabated oil and gas infrastructure, the Alliance expects investors, including members, to align with credible 1.5°C net zero scenarios. It highlighted that this cannot be achieved if there are new upstream infrastructure investments in new oil and gas fields.
“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,” said Alliance.
“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.”
It also expects investors to 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.
Oil and gas producers and their customers are also expected to set science-based, absolute- and intensity-oriented emissions targets covering Scope 1, 2, and 3 GHG emissions that are aligned with 1.5°C no or limited overshoot scenarios.
“As these scenarios make clear, 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,” the Alliance noted.
Regarding its expectations for policymakers and regulators, the Alliance focuses on 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.
The Alliance highlighted 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.
