The time for net-zero is now. Investors are stressing that we can no longer “wait and see” what the market will do, what a competitor may be doing, or if climate change is real. Nor is it time for slow adoption policies. Companies, especially those in the oil and gas industry, are being asked to take quick, decisive action today.
This blog post examines the rest of the indicators (6 through 10) as highlighted in the “Net Zero Standard for Oil and Gas,” published by the Institutional Investors Group on Climate Change (IIGCC) in September 2021. Previously we published a post on indicators 1 through 4, “A Net Zero Standard for the Oil and Gas Industry”, and indicator 5, “How the Oil and Gas Industry Can Get to Decarbonization”.
The Standard defines language and disclosure procedures in order to help investors and companies speak the same language, so that fair and intelligent comparisons can be made between peers. The Standard also strives to provide companies with acceptable actions they can take to make net zero a reality, as well as help them understand how to communicate their efforts and progress effectively.
Capex Alignment
This indicator (#6) looks at whether or not a company is “working to decarbonize its future capital expenditures” and if so, disclosing the methodology that it used to determine if it is in line with the Paris Agreement.
Capital investment (capex) plans are considered one of the “best forward-looking indicators” to assess a company’s commitment to the reduction of fossil fuel production and diversity into green energy. The Standard suggests that companies begin this process long before 2030.
To show that a company is doing this in good faith, it should:
- Disclose this alignment and set out the material assumptions underpinning this assessment;
- Disclose total group capex in the last financial year and a forward-looking budget (minimum three years ahead) specifying the number of years included in the budget and the expected breakdown by year;
- Disclose total capex in fossil fuel activities in the last financial year and a forward-looking budget (minimum three years ahead);
- Disclose total capex in upstream oil and gas activities in the last financial year and a forward-looking budget (minimum three years ahead); and
- Disclose total capex in oil and gas exploration activities in the last financial year and a forward-looking budget (minimum three years ahead).
A detailed disclosure plan is provided in Exhibit 9: Principal Capital Expenditure disclosures, on page 20 of the report.
Climate Policy Engagement
Lobbying is at the center of this indicator (#7). Although there is no supplemental disclosure information needed for this at this time, the Climate Action 100+ (CA100+) evaluates target companies based on whether they have “a Paris-Agreement-aligned climate lobbying position and all of its direct lobbying activities are aligned with this.”
Climate Governance
This indicator (#8) places the burden of success on those in charge. The Standard advises that a company’s movement toward reduced emissions and meeting emission targets be directly linked to executive pay.
Just Transition
CA100+ evaluates a target company based on whether “it considers the impacts from transitioning to a lower-carbon business model on its workers and communities.” There is no specific disclosure information provided for this.
TCFD Disclosure
In an effort to standardize methods of disclosure, this indicator (#10) aims to assess a company’s compliance with the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD).
Currently, companies set targets using either equity or operational boundaries. The Standard suggests that both should be used when disclosing all externally sold energy and emissions from this energy, aligning it with financial reporting.
While a total net zero compliance may seem improbable, investors and consumers alike are taking the initiative and demanding that something be done.
And some oil and gas companies are responding. Major European oil producers such as BP, Shell, Eni, Repsol and Total Energies, are set to pilot this Standard and prepare it for wider adoption across the sector.
These blog posts give a brief overview of the Standard and what is expected of oil and gas companies going forward. Click here for a copy of the complete report.
