G7 endorses ISSB standards, insurers exit UN climate group, and more

May 26, 2023

The top five climate risk and disclosure stories this week.

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G7 endorses ISSB climate standards

The Group of Seven (G7) nations officially announced their support for the International Sustainability Standards Board’s (ISSB) forthcoming climate and sustainability disclosure standards.

In a Saturday communique, the G7 said it’s in favor of the path that the ISSB outlined to make its standards the global climate and sustainability reporting baseline.

It encouraged countries to prepare to implement the baseline and ensure its interoperability with other national and regional climate and sustainability disclosure requirements. This is to help reduce the fragmentation of reporting rules, lessen organizations’ disclosure burdens, and promote the consistency of reliable sustainability and climate data.

“The baseline should be practical, flexible and proportionate and ultimately suitable for small- and medium-size enterprises,” the G7 statement said.

In response, ISSB chair Emmanuel Faber reaffirmed his organization’s commitment to working with different jurisdictions and market participants to develop and adopt the baseline.

The ISSB’s climate and sustainability standards are expected to be finalized in June 2023 and made effective beginning January 2024.

Insurers leave UN climate alliance

Leading insurers are exiting the Net Zero Insurance Alliance (NZIA) amid allegations of antitrust violations by US Republicans.

European insurers Axa SA, Scor SE, and Allianz SE left the group convened by the United Nations Environment Programme (UNEP) on Thursday, prompting the NZIA to hold an emergency meeting, Bloomberg reported. 

In a statement, UNEP reiterated the purpose of the NZIA, saying collaboration is needed among global insurers and reinsurers to address climate change and its associated risks. The organization said it will “strengthen and deepen” its efforts with the insurance sector to advance how it addresses climate issues and the net-zero transition.

Axa was the NZIA’s chair and a founding member, making its exit particularly significant. “Axa will continue its individual sustainability journey, as an insurer, an investor and a responsible company, leveraging this toolset to set its own individual decarbonization targets and support its customers in their transition,” a company spokesperson told Responsible Investor.

The NZIA has struggled to maintain its memberbase since Munich Re, the world’s largest reinsurer, left the alliance in March. 

NGFS explores short-term climate scenarios

The Network of Central Banks and Supervisors for Greening the Financial System (NGFS) is looking to develop short-term climate scenarios to complement its current long-term climate scenario framework.

On Wednesday, the NGFS, a group of central banks and supervisors committed to advancing climate risk management in the financial sector, said the primary goal of introducing near-term scenarios is to understand how a disorderly low-carbon transition and natural disasters will more immediately affect the financial system.

The group said the project will require advanced, macroeconomic models that provide a granular set of variables on global, country, and sector levels. It also said the models need to  elicit different system-wide shocks related to the risks associated with the low-carbon transition and extreme weather events.

To generate the short-term scenarios, the NGFS is looking to collaborate with modeling teams that have climate risk assessment expertise and experience supporting policy institutions.

It said modeling teams interested in participating in the project should express their interest to the NGFS by June 15, 2023.

Investor group releases net-zero benchmark principles

The Institutional Investors Group on Climate Change (IIGCC) published a report Tuesday outlining how index providers can enhance net-zero benchmarks.

The alliance of over 400 asset owners and managers focused on climate change put out five core benchmarking principles based on the findings of more than 30 investors. The principles are: 1) prioritize real-world emissions reductions, 2) ensure benchmark rules and their implications are transparent, 3) incorporate a sectoral and regional approach, 4) prioritize public data and integrate alternative alignment metrics, and 5) facilitate engagement to improve issuer behavior.

The working group that developed the guidance says it’s intended to be implemented across asset classes and should be viewed as best practice to improve real-world decarbonization. However, it noted that investors and index providers should be cautious of different nuances between asset classes, specifically as they relate to exclusions and engagement. 

The report also found net-zero benchmarks vary in their maturity across asset classes. For example, those for equities are the most advanced, while those related to fixed income, particularly for sovereign bonds, need improvement.

“Many net-zero solutions risk hitting the emissions target whilst missing the impact mark,” said Iancu Daramus, the director of climate-aligned investing at Fulcrum Asset Management, which contributed to the IIGCC’s working group. “What matters is not to reduce, on paper, an index’s average carbon footprint, but to unlock capital for companies showing ambition and progress in decarbonisation.”

US oil and gas emissions intensity falls

Methane and greenhouse gas (GHG) emissions intensities of US oil and gas companies dropped by 28% and 30% respectively between 2019 and 2021, according to an analysis released Tuesday.

The report, put together by sustainability nonprofit Ceres and the US Clean Air Task Force, is intended to provide clear and comparable emissions metrics to investors, regulators, and other relevant stakeholders. It surveyed the reported emissions of more than 300 oil and gas producers and found large gaps across companies. 

For example, the top 100 oil and gas firms were responsible for about 77% of GHG emissions and approximately 75% of methane emissions. Natural gas producers in the highest quartile of methane emissions intensity also had an average emissions intensity that was 26 times higher than producers in the lowest quartile. At the same time, oil and gas producers in the highest quartile of GHG emissions intensity had an average emissions intensity that was over 13 times higher than those in the lowest quartile.

According to the report, the decline in methane emissions — the most potent GHG — largely resulted from the reported reduced emissions from pneumatic controllers, a device used to measure air pressure and temperature before relaying a signal to a control valve. Associated gas venting and flaring also caused the largest decline in reported carbon dioxide emissions.

This analysis is Ceres’ and the Clean Air Task Force’s third annual report on emissions in the US oil and gas sector.