$11trn asset manager initiative urges members to stop investing in new oil and gas

Pictured: An oil platform in the Gulf of Mexico. Image: Shell/Mike Duhon Productions

The Alliance has today (29 March) published a new position statement on investment in the oil and gas sector. The statement concludes that no asset owners credibly claiming to have 1.5C-aligned climate strategies can be investing in new upstream infrastructure in the oil and gas sector, except in “exceptional circumstances”.

Such circumstances are classified as instances “where alternatives for affordable and reliable alternatives are not yet viable”. Even if investors support oil and gas firms or projects in such regions, the Alliance states, they should advocate for policy and regulatory efforts plus wider infrastructure development for a just energy transition.

Alliance chair Gunther Thallinger said that how energy is produced and consumed must “dramatically change” in all key 1.5C scenarios, including the International Energy Agency’s 2050 net-zero roadmap, the One Earth Climate Model and the 1.5C scenarios used by the Intergovernmental Panel on Climate Change (IPCC). The former scenario is predicated on no new oil and gas expansion coming online post-2021.

Thallinger said: “This includes the 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.”

The position statement spells out how, regardless of the pace of decarbonisation, investment in long-lived, upstream oil and gas infrastructure is likely to generate poor returns in the decades to come. Either the world fails to decarbonise significantly, opening up new frontiers of physical risk, or the low-carbon transition leaves many oil and gas infrastructure assets stranded.

For existing investments in the oil and gas sector, the new position statement states that Alliance members must engage with firms and projects which do not set have science-based climate targets that cover all emissions scopes and are credibly aligned with 1.5C, to either get them to set such targets or to divest from them. The UN-backed Race to Zero campaign notably does not let fossil fuel majors participate, partly on the grounds of weak climate targets across the sector.

Commenting on the position paper, Christiana Figueres, who is one of the Alliance’s strategic advisors, said:  “The latest IPCC report (which came out last week) is once again abundantly clear. There is simply no space for any investment in new oil and gas fields or infrastructure. It is a starkly binary question. There is no middle ground.

“The Alliance’s new Position sets forth important new standards for investors to align with this transition – including the expectation that oil and gas companies must set comprehensive science-based 1.5C-aligned emissions reduction targets and align their transition plans and investments accordingly, and that investors need to halt direct investment in new oil and gas fields and other mid- and downstream infrastructure.

“However, this position should have gone further in explicitly setting expectations for companies that are as clear as the expectations for investors. We do not have time to wait for companies to adopt new targets and transition plans before beginning to align their capital expenditures with what we know is needed right now: no investment in new oil and gas fields or other carbon-intensive infrastructure. We look forward to working with the Alliance to strengthen the position accordingly.”

Campaign group Reclaim Finance also sees room for improvement with the position paper, arguing that statements are non-binding. Its director Lucie Pinson said: “This paper makes the Alliance 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.

“Coming so soon after the IPCC’s hard-hitting message only highlights the Alliance’s failure of leadership. If leadership is to be found among asset owners it looks like it will need to be at the level of individual members: while the Alliance fiddles, it is time for its members to act.”

Insurance and reinsurance

In related news, campaign group Insure our Future has this week written to the chief executives of 30 major insurance and reinsurance companies, demanding more credible climate strategies.

The letter calls on the firms to stop offering any offering any insurance services which support the expansion of coal, oil and gas production and within two years. For fossil fuel companies not expanding extraction, the letter calls on the firms to phase out all insurance services unless companies can credibly prove alignment with 1.5C.

Firms receiving the letter include Lloyd’s of London, AIG, Allianz, AXA, Chubb and Zurich.

The letter states that while many insurance companies have significantly increased the strength of their coal exclusion policies in recent years, most are still supporting oil and gas expansion and/or oil and gas firms which will undermine the delivery of global climate targets.

It states that “numerous loopholes in policies and standards allow insurers to continue underwriting the expansion of fossil fuel production”, adding: “Several oil and gas policies restrict cover for exploration but not the development of expanded production. Others restrict cover for upstream projects but not the midstream and downstream infrastructure which, if built, will lock in expanded oil and gas production for decades to come. In addition, most policies don’t phase out support for ongoing fossil fuel production in line with a credible 1.5C pathway.

“Many insurers argue that they are actively engaging their energy sector customers in a dialogue about the net zero transition, but major oil and gas producers show no signs of adopting credible net-zero pathways and some have even walked back the weak commitments they have made in the past.”

Insure our Future has asked each of the companies to respond by 15 July.