The Vrije Universiteit Amsterdam (VU) and Utrecht University have announced that they will only collaborate with fossil companies that demonstrably commit, in the short term, to the objectives of the Paris Agreement. The Royal Netherlands Institute for Sea Research (NIOZ) also decided on stricter conditions for collaboration with external parties, but looks to NWO (Dutch Research Council), their parent organisation, to define a national policy or guidelines.
Why reinvent the wheel? Experts in the financial sector have been working on the topic of ‘Paris Alignment’ for several years and academic institutions can use this knowledge. Several Dutch pension funds are leading the way in Paris-aligned investing. A large part of their methodologies and exclusion lists are publicly available.
Misalignment in values
Like universities, pension funds have a societal role. Quoting their responsibility for making a positive impact, several pension funds (including PME Pensioenfonds, Pensioenfonds ABP, Pensioenfonds UWV) have decided to no longer invest in companies involved in fossil fuel production and exploration. This is despite the fact that pension funds are often passive investors who follow a broad market index – therefore exclusion of individual companies is seen as a last resort. Their reasoning is that extensive dialogue with oil & gas companies has not been effective and they do not expect these companies to make the required change in their business model.
Investors lost confidence in the sector’s ability to transition
Investors’ public statements on their disbelief in the transition plans of the fossil fuel industry are based on data, business plans and dialogue with the sector. Yet a large part of the academic world still argues for collaboration with fossil fuel companies based on an implicit belief that the fossil fuel industry is interested in transitioning. At a recent open discussion of the NWO (the Dutch science funding body), a Dean at the Eindhoven University of Technology opined that scientists can help the transitioning fossil fuel industry along, a view shared by a professor of sustainability whose research group is sponsored by Aramco (which is planning major expansion of fossil infrastructure).
The investor-led initiative Climate Action 100+ (representing 700 global investors), has been pushing the world’s largest corporate greenhouse gas emitters to take necessary action on climate change since 2017. When Shell decided this summer to focus on short-term profit maximisation at the expense of the energy transition, The Church of England Pensions Board – co-lead of Shell engagement for CA100+ until 2021 – divested. The reasoning: “Recent reversals of previous commitments, most notably by BP and Shell, has undermined confidence in the sector’s ability to transition”.
Paris Alignment methodologies used by Dutch pension funds
We looked at the Paris Alignment methodologies used by seven Dutch pension funds with progressive policies. Six of them categorically exclude all or a part of fossil fuel production. Five of them (also) use a metric-based approach where the worst polluters are excluded. Conversely, as soon as a company has made a significant change in their business model and capital expenditure, pension funds will invest in them again.
There are several guidelines and methodologies from the financial sector that can be used by Dutch academia, such as the European Union Paris-Aligned Benchmark, the online tool of the Transition Pathway Initiative (TPI) , and the Net Zero Company Benchmark by CA100+. The Global Coal Exit List (GCEL) and the Global Oil & Gas Exit List (GOGEL) from Urgewald provide useful and publically available data.
Practical next steps
With an eye on short-term, demonstrable commitment, the VU and the UU could take inspiration from these three objectives that major Dutch investors expect from oil and gas companies to achieve before 2024: A) Set short and medium-term carbon intensity and absolute reduction targets aligned with 1.5°C warming, which include scopes 1, 2, and 3. B) Develop a decarbonisation strategy that supports these targets. C) Demonstrate how planned capital allocation supports the decarbonisation strategy.
While the concept of Paris Alignment is clear, it becomes complex in the choice of definitions, data and approach. The financial sector has put enormous amounts of work and expertise into this topic, from which the academic world could benefit. If you’d like to learn more about the methodologies used in the financial sector, reach out to us – we’d be happy to walk you through it.
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