Standard emission disclosures the key as banks shun O&G projects, say O&G players

Monday 20 May 2024

KUALA LUMPUR (June 26): The adoption of international sustainability standards or accounting rules for emission disclosures is a key component that will allow capital market participants to better assess oil and gas (O&G) companies and new projects such as carbon capture, panellists at the Energy Asia 2023 conference said.

This is important as financial institutions are increasingly turning away from fossil fuel projects, which hinders research and development (R&D) activities and projects that would otherwise push the sector towards better emissions reduction.

While US$130 trillion (RM608 trillion) worth of assets under management were pledged by the Glasgow Financial Alliance for Net-Zero (GFANZ) to invest in projects targeted to address climate change in 2021, "not much has been heard since" by way of disbursement, said Petronas president and group chief executive officer Tan Sri Tengku Muhammad Taufik Tengku Aziz.

A group formed during the COP26 climate conference in Glasgow, GFANZ is "the world's largest coalition of leading financial institutions committed to transitioning the global economy to net-zero greenhouse gas emissions", according to its website.

“Petronas has been present in capital markets… but when we issue an expression of interest invitation, we have seen a complete swaying away from funding O&G. Fossil fuels, apparently without diminishing on the other industry, is the new tobacco,” said Muhammad Taufik.

For Petronas’ carbon capture storage project, some see it “as an excuse for the industry to legitimise continuing production of fossil fuel”, he said.

“We think it is really disheartening when the very R&D you’re speaking about, in trying to unlock this financing, is [facing] even more risk premiums over risk premiums,” he said, adding that developing economies have to take bets on technologies.

“We have seen a worrying pattern… we tried to work with four banks. One during the process mentioned, ‘We’ve got to stop this process because you’re fossil fuels’,” he added.

“Let’s live with one standard. Let’s have credit committees that really understand what energy security is all about,” he said.

Similarly, World Business Council for Sustainable Development (WBCSD) president and CEO Peter Bakker emphasised the need to embrace the international sustainability standards established by the International Sustainability Standards Board (ISSB).

Aside from assessing the transition of O&G companies, the standards will also provide better clarity in terms of environmental costs abated by renewable energy projects.

In a nutshell, the standards are seen as a global baseline or accounting rule for emission disclosures. The ISSB expects to publish the new voluntary standards on Monday (June 26), comprising sustainability related financial information and climate related disclosures, which are expected to be effective from 2024 onwards.

“Let’s all embrace that — make that mandatory in as many countries as soon as we can, so that we get comparable materiality-based data that capital markets and credit raters can then begin to embrace.

“Unless we change the valuation models, we’re not going to make this [transition]. There is no IRR (internal rate of return) for decarbonisation today because we do not factor in the environmental costs of some of the other products that we are currently using.

“[We need to think about] how do we, if we have standardised materiality based non-financial emission data, put those risks into the cost of capital formula, and get to the situation where the IRR of the renewables will be significantly higher than they are today,” Bakker said.

Edited ByTan Choe Choe

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