Paving a Credible Investment Pathway to Net Zero for Oil and Gas
Paasha Mahdavi, OECD Consultation on Investment Treaties and Climate Change, March 2022.
Investment treaties have the potential to play a significant role in motivating and bolstering confidence in climate targets by fossil fuel firms. This report identifies specific proposals that will strengthen these linkages in the context of oil and gas company net zero and other climate strategies.
Transparency in emissions reporting
Just as the OECD has proposed transparency in investor claim resolution, investment treaties should adopt high standards for the reporting of detailed data on emissions resulting from investments in the fossil fuel sector. This includes not only operational (scope 1) and indirect (scope 2) emissions but also consumption-based (scope 3) emissions as well, in line with recent proposals by the SEC, the European Commission CSRD, and the broader objectives of the TCFD.
Disclosure of climate risks in oil and gas investments
Oil and gas firms have historically internalized risk assessments of climate-vulnerable assets, such as the exposure of refineries to sea level rise and increased storm intensity. Yet few report these data to their investors, let alone to the broader public. Exposure to these potentially stranded assets in the fossil fuel sector is estimated at roughly $250 billion. Investment treaties should adopt disclosure standards for climate risk to publicize parties’ exposure to stranded assets and climate-vulnerable investments.
Green conditions for reinvestment into renewables.
Much like financing incentives for investors to support coal ramp-down in the Global South, investment treaties should adopt provisions to incentivize oil and gas firms and their financiers to reinvest profits into renewable and low-carbon solutions. This could include tax credits, fee exemptions, or low-interest loans and grants. Such provisions could further provide a market-based motivation for oil and gas firms to increase the overall share of renewables in forward capital expenditures.
By targeting disclosure standards and incentives for clean energy reinvestments, the future of the investment treaty regime holds great promise for further advancing green transitions within the oil and gas sector.