New guidance from the Net-Zero Asset Owner Alliance asks for investment in oil and gas projects to be reduced to speed up the energy transition has received a mixed response.
The UN-convened Net-Zero Asset Owner Alliance (NZAOA) says its long-awaited position paper on oil and gas investments represents a strong call to curtail financing to the sector, but critics say the alliance’s position lacks bite.
The publication of the paper by the leadership of the group of 85 institutional investors, whose assets total an estimated $11trn, follows an 18-month consultation period. It is seen as a response to previous criticism that the alliance needed to toughen up its stance on oil and gas investments projects if it was serious about hitting net-zero targets required to avert the worst of global warming.
In the paper, NZAOA said members should not invest in new oil and gas fields, limiting any direct investment activities in fossil fuels to existing fields, and that investment in oil pipeline distribution and storage should be limited to brownfield projects.
It called for members to develop oil and gas policies that align with limiting global warming to 1.5℃ above pre-industrial levels. It also said it expected oil and gas producers and their customers to set science-based, absolute- and intensity-oriented targets for emissions, including those produced across their supply chains, aligned with 1.5°C “no or limited overshoot scenarios”.
The alliance also called for greater policy ambition to rapidly reduce oil and gas demand and increase the availability of renewable alternatives.
Günther Thallinger, NZAOA chair and an Allianz SE board member, said that the world needed to achieve a net-zero economy by 2050, 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 will do that,” he said.
Others said they were not convinced that the NZAOA’s new position was strong enough to produce action that would meet its stated goals.
Sustainable finance group Reclaim Finance described the alliance’s position on oil and gas investments as “feeble” and “a great leap backward”, noting that the paper called only for investors to “practice discipline” in making infrastructure financing align with emissions targets and that its recommendations were non-binding and often vague.
Campaigners also noted that the alliance did not rule out portfolio investments in companies that invested in new oil and gas projects. Instead, the alliance made recommendations on how asset owners could improve stewardship of portfolio companies so they could transition away from oil and gas.
“This paper makes the AOA look more aligned with ‘big oil’ than it is with net zero. The alliance claims to be committed to halving emissions by 2030, but is not prepared to set actions for its members that might put that goal within reach,” Lucie Pinson, director of Reclaim Finance, said.
“If leadership is to be found among asset owners it looks like it will need to be at the level of individual members,” she added.
Dissent was not limited to campaigners. Danish pension fund AkademikerPension said it was considering leaving the alliance because the NZAOA’s new position did not adequately restrict investments by members in shares and bonds of oil and gas companies. Anders Schelde, the pension fund’s chief investment officer, said the position did not match the institution’s standards, according to Reuters.
The difficulties of finding a position that accommodates the views of a broad spectrum of stakeholders is acknowledged by the alliance in reference to the absence of the logos of two advisory member NGOs, WWF and Global Optimism, from its position paper.
“The difference between the alliance asset owner-driven positions and the positions of the civil society advisers is analogous with the core disconnect that we are observing in real-world ambitions of meeting net zero, with the practical reality that the world is not yet moving fast enough,” the alliance says on its website.
Legal action concerns
The debate over the alliance’s position mirrors arguments made over the similar stance of the Glasgow Financial Alliance for Net Zero (GFANZ), of which NZAOA is itself a member. Those received a thorough airing during January’s World Economic Forum meeting in Davos.
GFANZ, led by former Bank of England governor Mark Carney, said in October 2022 it would drop a requirement for member alliances to partner with the UN”s Race to Net Zero, and would just encourage participation instead
That move was believed to be, in part, a response to the threat of legal action under US antitrust law from other US institutions reluctant to introduce climate change measures at the rapid pace envisaged by GFANZ. They claimed GFANZ members may be acting together in a concerted way that contravened US law. In relation to such concerns, NZAOA stresses its members make their own policies and decisions.
That this remains a hot topic is indicated by the withdrawal of Zurich Insurance Group and Munich Re from the Net Zero Insurance Alliance (NZIA) – another GFANZ member organisation – to avoid the risk of antitrust action. Both firms said they would pursue their own climate or sustainability targets, and both remain NZAOA members.
Supporters of GFANZ and NZAOA have said that, while their approach may not be as robust as some would like, their efforts to push investors to adopt rigorous net zero policies, should still be welcomed.