Methane Emissions are Risky Business for Investors

No one likes uncertainty, least of all investors. From changes in interest rates, to supply chain disruptions, the list of risks investors must monitor is long and growing. Good, actionable information is investors’ most important tool for risk management and integral to successful investing. Without proper data, investors are flying blind.

Rising-Risk-coverA new report published by EDF this week  throws the spotlight on a growing risk for investors—methane emissions from the oil and gas sector. As so clearly demonstrated by the ongoing and massive leak at Aliso Canyon, methane emissions pose a multitude of expanding risks, with both short and long-term consequences.

Three key risks from oil & gas methane

At 84 times more powerful than carbon dioxide in the short-term, methane emissions represent a potent and fast-emerging form of carbon risk. In a world looking to reduce carbon pollution, methane emissions pose regulatory, reputational and economic risks. Preparedness to comply with forthcoming rules varies across the industry, methane undercuts natural gas’ ability to play a role in a carbon-constrained world, and emissions of methane are lost product amounting to $30 billion a year globally.

Investors should be asking themselves these questions:

  • Do you know how much money your oil and gas companies are losing?
  • Do you know if they have a plan to reduce emissions to limit impacts?
  • Do you know how prepared they are to comply with forthcoming regulation?

It’s difficult to find out, and that’s a problem.

The power that good information offers investors

Sean WrightMethane disclosure in the oil and gas industry is poor, leaving investors in the dark. The industry generally fails to disclose the information investors require tor properly manage the aforementioned risks and assess corporate methane performance.

EDF reviewed investor-facing disclosures for 65 large oil and gas companies, and found few companies report on methane and existing disclosures are low-quality, vague and overly qualitative.

If I were an investor, this would concern me.

I would know – before I came to work at EDF, I was an equity analyst on Wall Street. I spent my days pouring over data trying to spot opportunities and risks. The numbers were trustworthy and actionable as figures in financial filings must be audited and reported according to strict accounting rules.

Rising-Risk-pipelineOne of the most striking findings is that zero of the 65 companies we reviewed disclose targets to reduce methane emissions. Without reduction targets, how can investors know that management attention is focused, and the emissions, and thus risk, will be reduced? Additionally, less than a third of companies voluntarily disclosure emissions –making it difficult for investors to hedge methane risk by investing in companies with comparatively lower emissions,

What investors can do to improve reporting

Improving methane emissions is possible, and our new report offers practical solutions, including a set of methane metrics that can help turn much of the raw data companies already have into meaningful information. Investors should urge companies to report their emissions via platforms such as CDP, which recently revamped its Oil and Gas Sector Supplement using our metrics. Make methane a part of your engagement with management, using a list of questions included in the Rising Risk report’s appendix as a guide.

Asking about methane will send a signal that it is an issue that needs oversight. For example, ask a company how much product they are losing. If they are unwilling or unable to answer that question, shouldn’t that give you pause?

EDF is hosting a webinar for investors and other interested parties on Friday, Jan 15th at 11AM ET to discuss the Rising Risk report and what investors can do to bolster disclosure. Andrew Logan from Ceres, Chris Fowle from CDP and Jonas Kron from Trillium Asset Investment will join Rising Risk lead author Sean Wright to share their perspectives on this fast-emerging investor risk.

Register now for this exciting webinar