$11trn Net-Zero Asset Owner Alliance wants lower oil and gas demand
The UN-backed group has issued fresh guidance for investors on how to align their oil and gas investments
Asset owners should work to reduce the demand for oil and gas, primarily by setting exclusion policies and take a more active stewardship approach than they currently do, according to the Net-Zero Asset Owner Alliance.
The UN-backed group, whose members have more than $11 trillion in assets under management, said an important tool to get to net zero is by reducing dependency on oil and gas.
The calls come as the Alliance published a new position in which it identifies climate change as a major issue that creates a range of investment risks.
The most important driver to reduce these risks would be for economies to gradually transition away from traditional energy resources, the most important ones being oil and gas.
Subsequently, the member-led group set out guidance for investments in oil and gas, thereby urging urges suppliers to set clear Scope 1, 2 and 3 greenhouse gas emission reduction targets throughout their operations.
This led NZAOA chair Günther Thallinger to say that the way energy is currently produced and consumed throughout the world calls for a "dramatic change."
“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," the asset owner's lobby chief said.
How energy is provided and consumed must dramatically change.
Thallinger stressed that "there is a 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," he went on to say.
“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."
Thallinger said that "these scenarios also note that no new oil and gas fields must be developed to meet this declining demand."
Active stewardship
In its position, NZAOA urges its members to apply more direct stewardship, namely by setting climate goals for individual companies and align portfolio allocations and stewardship decisions with these targets.
Moreover, it calls on asset owners to actively support and embrace regulatory efforts and legislative proposals that tackle climate change issues.
The Alliance believes more engagement with asset managers is needed so a more coordinated approach to net zero challenges can be formulated.
Law, policy and regulation
With regards to current legislative efforts and regulatory frameworks, NZAOA believes asset owners can take an active approach to encourage watchdogs and policymakers to speed up efforts to reduce oil and gas demand.
Also, alternative and renewable energy efforts should be encouraged throughout the economy, as they can further help to roll out incentives to decarbonise, drive innovation and give capital markets a boost by pricing externalities into the finance space.
Investments
Finally, on private investments in new oil and gas assets and facilities, the Alliance urges asset owners to only do so if they are compatible with credible 1.5 scenarios.
This is unrealistic if there are new upstream infrastructure investments in new oil and gas fields, NZAOA wrote.
“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.
The Alliance continued: “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."
The group stressed that "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.”
The position, as scrutinised by Net Zero Investor, was written by the members of the Alliance. They include some of the world's biggest owners.
Contributing members include some of the biggest names in the asset owner space, including Patrick Peura (Allianz), Adam Matthews (Church of England Pensions Board), Oliver Büsse (Munich Re), Viktor Keller (Munich Re), Matthias Pedersen (PFA), Peter Sandahl (Nordea Life & Pension), Liza Jansen (Prudential), Claudia Bolli (Swiss Re) and Massimo Mancin (Zurich Insurance Group).
