Stockholm (NordSIP) – Following a couple of years of intense work, on 18 April, the Institutional Investors Group on Climate Change (IIGCC) published their new framework for assessing the alignment of companies’ transition plans with a 1.5°C climate scenario. The Net Zero Standard for Oil & Gas is one of several sector-specific frameworks developed to help Climate Action 100+ investors and other stakeholders to determine their engagement priorities and escalation strategies and assess the transition risk in their portfolios. It is designed to complement the sector-neutral Climate Action 100+ Company Benchmark, with initial public assessments of oil and gas companies expected in late 2023.
Developing the new standard has been a collaborative effort led by IIGCC with support from the Transition Pathway Initiative (TPI), leading Climate Action 100+ investors and regional investor groups and Chaired by the Church of England Pensions Board. Before finalising the standard, IIGCC published some provisional indicators in September 2021. A subsequent pilot study covering five major European oil and gas companies showed the need for continued improvement in several areas, particularly the alignment of all targets and plans with relevant 1.5°C scenario benchmarks.
The Standard comprises 90 binary metrics which align with the eleven indicators of Climate Action 100+ Net Zero Company Benchmark. Once metrics have been allocated to the appropriate indicator, they are sorted into one of four buckets: Disclosure; Alignment assessments; Divergence of company-wide emission targets with sector pathway; and Climate solutions. Similar to how the Climate Action 100+ Company Benchmark is displayed currently, investors that wish to investigate a particular area of outperformance or underperformance are able to click on a specific indicator to access the supporting sub-indicators and metrics.
“This is intentionally a demanding yet practical Standard that ensures investors will have the transparency they need to differentiate between companies that are genuinely transitioning and those that are not,” comments Adam Matthews, Chair of the process for the Oil & Gas Net Zero Standard & Chief Responsible Investment Officer for the Church of England Pensions Board. “It levels the disclosure landscape.”
Matthews refers to the concerns expressed by some stakeholders previously that the standard may not be ambitious enough. Critics have argued that while the standard requires companies to develop and disclose a clear net-zero emissions strategy, it does not set specific emissions reduction targets or timelines. The new version is meant to alleviate such concerns.
“We recognise it will not be easy to meet the Standard from day one, but we are inviting companies to unequivocally commit to disclose against the Standard and to set out a timeline to do so over the coming year,” says Matthews. “For those companies seeking to transition their business and carry a legitimate mandate of their shareholders and those that finance their debt, this Standard offers a route through. I would strongly encourage all oil and gas companies to engage with it, commit to it and investors to seek to support its adoption.”
