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Investors’ New Net Zero Standard Turns Up the Heat on Oil and Gas Companies

Fossil companies are under renewed pressure to meet a 10-part Net Zero Standard for Oil and Gas, including winding down production and sharply reducing their greenhouse gas emissions, under a new initiative introduced last week by investment firms overseeing more than US$10 trillion in assets.

The “ambitious blueprint” gives front-line money managers a new way to compare fossils’ emission reduction claims and assess how well they align with a drive toward net-zero global emissions by 2050, Reuters reports.

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“We need to have a level playing field now on disclosure because it’s not possible to compare and contrast across the sector,” said Adam Matthews, head of responsible investment at the Church of England Pensions Board, who chaired the group of investors and companies that developed the new standard. Reuters says other participants included Europe’s biggest asset manager, Amundi, as well as the UK’s Legal & General Investment Management, HSBC Global Asset Management, and France’s Caisse des Dépôts.

The new standards require companies “to reach net zero carbon emissions by 2050, meeting emissions-reduction targets along the way while aligning capital expenditure and production plans with the net zero target,” Reuters writes. They also “demand commitments to disclose and independently verify strategies.”

While there’s no deadline attached to last week’s release, Matthews said participating investors are prepared to vote their shares against fossil companies’ transition plans or board of directors appointees if they don’t like what they see.

“Given the fossil fuel industry is responsible for the lion’s share of global emissions, the investor group said it is introducing a minimum set of standards to ensure that energy companies’ plans are ‘credible’,” the news agency adds.

The news landed just a day after S&P Global became the latest to express concern about inconsistent terminology, greenwashing, and investor confusion around environmental, social, and governance (ESG) standards for green bonds.

“The financial information provider believes sustainable bond issuance, including green, social, sustainability, and sustainability-linked bonds, could collectively exceed US$1 trillion in 2021, a near 500% increase on 2018 figures,” Corporate Secretary writes. But “a lack of transparency around [financial] instrument labelling, reporting, and data disclosure leaves many stakeholders wondering whether greenwashing—where an organization presents itself as more environmentally friendly than it is—has tainted those numbers.”

The lack of consistency in ESG terminology “may drive investor confusion when it comes to identifying which companies or financial instruments adhere to a set of ESG standards,” the news story adds.

Last year’s Journal of Environmental Investing Report identified more than 20 separate labels for sustainable bonds, Corporate Secretary says. ‘The wide range of labels—and an even wider range of definitions for what constitutes a green or social project—makes navigating the sustainable bond market increasingly difficult for investors and reduces comparability across instruments.”

Corporate Secretary cites several efforts to develop standards of taxonomies for green investments, mainly in the European Union and China.