Banks should take a more significant part in addressing the Scope 3 greenhouse gas emissions in the oil and gas sector, according to the New Zealand Oil & Gas Association (NZOA).
The Net Zero Asset Owner Alliance (NZAOA), a global group of investors committed to achieving net-zero greenhouse gas emissions by 2050, has released a new paper highlighting the importance of addressing Scope 3 emissions. These emissions, which account for a significant portion of a company's total emissions and originate from sources not directly owned or controlled by the organisation, have been identified as a key concern, especially for investors in fossil fuel firms.
The NZAOA is urging policymakers to standardise disclosure practices for Scope 3 emissions and is advocating for regulators to provide clearer guidance on material categories for these emissions within each sector. The alliance suggests focusing primarily on Category 11 emissions within Scope 3 - those associated with the use of sold products.
In the oil and gas sector, where Scope 3 emissions can represent 80-95% of total emissions, the NZAOA is advocating for the adoption of mandatory Scope 3 disclosures, similar to existing policies in the European Union and Japan. The alliance is also suggesting the incorporation of Scope 3 emissions into sectoral financed emissions reduction targets, as outlined in their target-setting protocol.
The NZAOA is advising asset owners to exercise careful consideration when interpreting and using Scope 3 emissions data from companies due to the diverse methods used for calculation. Only a handful of oil and gas firms have set Scope 3 emission reduction targets, and only a small number of companies in the sector have set net zero ambitions for Scope 3 emissions.
Engagement with banks should extend to their banking relationships, enabling improved value chain reporting and potential divestment from high-emitting sectors. The alliance is also recommending that investors engage with banks to encourage disclosure practices aligned with regulatory or climate initiative targets.
The NZAOA is calling for standardised estimation models and data verification processes for Scope 3 emissions. The alliance also proposes that asset owners shift investment towards issuers with approved Scope 3 targets.
In addition to these specific recommendations, the NZAOA's general approach to addressing Scope 3 emissions includes tracking and monitoring these emissions, engaging with companies to advocate for climate action, using catalytic capital to support companies transitioning to lower-carbon operations, and advocating for regulatory changes that support climate action and reduce emissions across the entire value chain.
While the NZAOA's latest paper does not provide specific recommendations directly addressing Scope 3 emissions in the oil and gas sector, it emphasises the need for enhanced transparency of emissions financed or facilitated by banks in high-emitting industries. The alliance encourages efforts to close the gaps in Scope 3 reporting in these sectors.
The Net Zero Asset Owner Alliance (NZAOA) is suggesting the incorporation of Scope 3 emissions into sectoral financed emissions reduction targets in various industries, including the oil and gas sector. The NZAOA is also advocating for the adoption of mandatory Scope 3 disclosures in high-emitting sectors, referencing existing policies in the European Union and Japan as a potential model.
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