NZAOA: banks must play a bigger role in tackling oil and gas Scope 3 emissions

The UN-convened Net Zero Asset Owner Alliance (NZAOA) has called for regulatory mandates on Scope 3 emissions disclosure and increased investor engagement with banks to address emissions associated with oil and gas firms.

In a new paper, the NZAOA urged policymakers to standardise disclosure practices, noting that carbon accounting and target setting for Scope 3 emissions present significant challenges for asset owners. Scope 3 emissions are those originating from business operations by sources that are not directly owner or controlled by an organisation.

Scope 3 emissions typically account for three-quarters of a companies’ total emissions. For oil and gas firms, they represent 80–95%, according to a report by Wood Mackenzie, yet only a small number of companies in this sector have set net zero ambitions for Scope 3 emissions.

The NZAOA calls on regulators to offer clearer guidance on material categories for Scope 3 emissions within each sector, alongside standardised estimation models and data verification processes. These measures, the alliance argued, would improve data coverage, credibility and comparability. It also advocated for mandatory Scope 3 disclosures, similar to existing policies in the European Union and Japan.

Addressing Scope 3 emissions in the oil and gas sector specifically, the report urged asset owners to exercise “careful consideration” when interpreting and using such data from the companies. The diverse methods employed to calculate their Scope 3 emissions can significantly impact final numbers, the NZAOA said. 

Scope 4 emissions have become a major source of debate for investors in fossil fuel firms in particular as they often account for the vast majority of overall emissions. Greenhouse gas emissions that occur outside a firm's direct control including the wider value chain, also known as Scope 3 emissions, account for 80-90 of total emissions at oil and gas producers, according to research by data provider Wood Mackenzie. Yet only a handful of oil and gas firms have set Scope 3 emission reduction targets. 

The NZAOA suggests focusing primarily on Category 11 emissions within Scope 3 — those associated with the use of sold products—while treating emissions from trading activities as a separate category.

The report highlights that gaps in the Scope 3 reporting among high-emitting industries, such as oil and gas, necessitate efforts to enhance the transparency of emissions financed or facilitated by banks. The NZAOA recommended that investors engage with banks to encourage disclosure practices aligned with regulatory or climate initiative targets.

“Engagement with banks should extend to their banking relationships, enabling improved value chain reporting and potential divestment from high-emitting sectors,” the report stated.

The paper also proposed several additional recommendation to asset owners including shifting investment towards issuers with approved Scope 3 targets; and incorporating Scope 3 emissions into sectoral financed emissions reduction targets, as outlined in the NZAOA’s target-setting protocol.