Methane shareholder resolutions could yield big change, says investor

Oil and gas investor pressure is building, with 20 climate shareholder resolutions up for review at annual meetings held by publicly-traded energy companies this month. While the climate filings cover a range of issues, improved methane management is in the mix.

Last year was a breakout year for methane investor activism. ExxonMobil’s XTO Energy subsidiary business announced a reduction plan in response to a 2017 methane disclosure resolution, with onlookers expecting more change to follow this year from others. Meanwhile, a growing global network representing 36 investors and $4.2 trillion in managed assets continue to call on companies for methane reductions.

In the second-part of our interview series with Jamie Bonham, Manager of Corporate Engagement at NEI, we talk about how influential Environment, Social and Governance (ESG) shareholder resolutions, such as methane, have been in the past. We also discuss what prompts investors to file resolutions, and the potential impact on companies.

Read more

3 ways sustainable finance can accelerate the Fourth Wave of environmentalism

Close your eyes and think about innovation. How many of you thought about a widget – a robot, a self-driving vehicle, a sensor? I’m guessing almost all of you. How many of you thought about regulations, contracts and financing? Maybe a few at most. This is the exercise that former Secretary of Energy, Ernest Moniz, and David Cash, former Massachusetts Department of Environmental Protection Commissioner, prompted at the launch of the WBUR Environmental Reporting Initiative.

Read more

Investors: Methane targets wanted

With upcoming annual meetings full of shareholder resolutions calling on companies to set greenhouse gas (GHG) reduction targets, EDF released "Taking Aim", a new paper explaining why methane targets are the next frontier for the oil and gas industry and establishing five keys for strong targets. The paper explains how companies that set targets are more likely to be successful when it comes to securing methane emission reductions. Setting targets also demonstrates to investors that corporate decision makers understand methane risk management is critical to competing in an ever-cleaner energy market.

With the Task Force for Climate-Related Financial Disclosure (TCFD) framework also highlighting the importance of targets, “Taking Aim” provides some initial guidelines that can help frame what an ambitious, leading target looks like for oil and gas industry methane.

Read more

Methane a potential blind spot for Canadian oil and gas industry, says investor

While a growing number of global oil and gas companies step up to reduce methane emissions, many operators in Canada have hesitated to take concrete action, perhaps waiting instead for federal and provincial regulations to address the issue.

EDF’s Sean Wright recently sat down with Jamie Bonham, Manager of Corporate Engagement at NEI, a Canadian investment firm based in Toronto with $6 billion in assets under management. Bonham is concerned many Canadian operators do not understand the full scope of their oil and gas methane problem, but says there is considerable opportunity for Canadian companies to exert leadership.

Read more

As ESG goes mainstream, methane disclosure divide looms large on investor agenda

The demand for corporate transparency is here to stay. Just last year, 390 investors representing more than $22 trillion assets signed a letter in support of the Task Force on Climate-Related Financial Disclosures, advocating for a unified set of recommendations for corporate climate disclosure. So as financial markets increasingly recognize Environmental, Social, and Governance (ESG) risks, and increasingly embrace ESG strategies, oil and gas companies failing to report on environmental risks, like methane emissions, will be at a disadvantage.

Yet despite the reputational and financial risks posed by methane emissions in the oil and gas sector, over 40 percent of oil and gas companies analyzed in a new EDF report fail to report even basic information on methane management. The report finds that the quality and quantity of methane risk management reporting has increased amongst nearly 60 percent of companies analyzed. But the overall improvement has not been enough.

Read more

Four takeaways for investors from methane disclosure report

Two big developments this month suggest that investor interest in climate-related financial risk is at an all-time high. The first is Climate Action 100+, a new initiative led by Ceres and 225 investors with more than $26.3 trillion in assets under management to strengthen climate-related financial disclosures among the world’s largest corporations.

As investors work to increase reporting on climate risk, methane emissions will be top of mind. Methane, the main component of natural gas, is 84 times more potent than carbon dioxide when released to the atmosphere over a 20-year period – and is responsible for 25 percent of the warming we’re experiencing today.

That’s why the second development, this year’s Disclosing the Facts report, departed from its normal broad survey of chemical, air, water and community impact risks facing U.S. gas producers to do a deep-dive on methane reporting. (Full disclosure: I’m an acknowledged reviewer of the report.) The report is a joint effort between As You Sow, Boston Common Asset Management, and The Investor Environmental Health Network.

The report poses 13 questions that span both quantitative metrics and qualitative narrative with the aim of testing whether companies report a thorough, systematic approach to methane management. The disclosures of 28 U.S. producers are evaluated against these parameters and a company can earn one point for each of the 13 questions posed.

Four main takeaways emerge from the analysis:

Read more

Methane leadership is a competitive advantage, says global investor

Environmental Defense Fund Q&A with Tim Goodman, Director of Engagement at Hermes Investment Management

Tim Goodman, Director of Engagement at Hermes Investment Management

Early oil and gas industry adopters of methane management strategies and technologies are starting to see these reductions as an opportunity to gain a competitive edge.

Just last week, ExxonMobil announced  a new methane reduction program for its XTO Energy subsidiary, underscoring that the industry is paying close attention to the issue.

Methane, the main ingredient in natural gas, is leaked and vented across the oil and gas supply chain every day as the world energy mix shifts towards greater natural gas usage, according to the International Energy Agency. The oil and gas industry wastes billions of dollars a year of methane that simultaneously acts as a climate change accelerator, harming the brand of natural gas as a cheap and clean fuel source. Methane is 84 times more powerful as a heat-trapper than carbon in its first 20 years in the atmosphere. Read more

Investor sees methane management as self-help for oil & gas companies

Environmental Defense Fund Q&A with Tim Goodman, Hermes Investment Management

Tim Goodman, Director of Engagement at Hermes Investment Management

When burned, natural gas produces half the carbon as coal, so it is often touted as a “bridge” fuel to a cleaner energy future. But the carbon advantage of natural gas may be lost if too much of it escapes across its value chain.

Natural gas is mostly methane, which, unburned, is a highly potent greenhouse gas accounting for roughly a quarter of today’s global warming. Worldwide, oil and gas companies leak and vent an estimated $30 billion of methane each year into the atmosphere.

EDF’s Sean Wright sat down with Tim Goodman, Director of Engagement at London-based Hermes Investment Management. Goodman, who views methane management as practical self-help for the industry to pursue, engages with oil and gas companies on strategies to manage their methane emissions. This is the first of a two-part conversation with Hermes, a global investment firm, whose stewardship service Hermes EOS, advises $330.4 billion in assets.

Wright: Do you think the oil and gas industry is changing its overall attitude towards climate after the historic Paris agreement and recent successful shareholder resolutions? If so, how do you see that change manifesting itself?

Goodman: I think climate change is obviously an existential question for the industry. The really big question is can it actually change in response to Paris? The industry is beginning to respond as a result of Paris and shareholder proposals and other stakeholder pressure. You’re seeing some of the majors increasing their gas exposure at the expense of oil. You’re seeing a number of international oil companies reducing or ending their exposure to particularly high carbon or high risk assets, such as the Canadian oil sands or the Arctic. The oil and gas industry is also starting to place a greater focus on methane management and its own emissions.

Wright: What about investors – what do you think is driving the continued momentum around methane and climate as we see larger and more mainstream funds tackling these issues?

Goodman: Let’s talk about climate for the moment – the roles of both investors and companies in the run up to the Paris agreement and during the negotiations were crucial. The investors made it absolutely clear that they wanted to see a successful Paris agreement. Addressing climate change is good for business and good for their portfolios. And we saw this with the Exxon vote – the two-degree scenario proposal where mainstream asset managers voted for this proposal. We believe that this happened because of the underlying pressure asset managers were getting from their own clients who have a long-term perspective and see climate change as a risk to their funds.

Specifically on methane, it’s practical self-help for the industry to embark on methane management. It’s an obvious practical measure for investors to engage upon. If you can reduce your contribution to greenhouse gases, save money, and gain revenue by being more efficient and safe, why wouldn’t you do that? It’s an easy entree into engaging with the oil and gas industry. Whereas the existential question, what’s your business going to look like 20 years from now, is a more difficult question perhaps both for the industry and the companies themselves.

Wright: You pretty much just explained why Hermes prioritized methane – is that correct?

Goodman: Yes. But the science is a big part of it. Methane is a far more potent greenhouse gas than carbon – the more that we can minimize its effects, the greater the window the world has to transition to a low carbon economy. Methane’s effects don’t last as long as carbon, but if we don’t tackle methane, we aren’t taking meaningful action to move to a low-carbon economy.

Wright: What do you see as the risks of unmanaged methane emissions?

Goodman: There is an economic risk and benefit for companies. Most of the measures to manage methane are relatively low-cost and can very easily be implemented for new projects. If you’re not doing them, for example, and you’re fracking shale, you’re at a competitive disadvantage to your peers. The cost-benefits perhaps are more difficult, but still there, in existing infrastructure. But particularly among the oil majors, their relationship with their host governments, local communities, and other stakeholders is vital. It’s important for companies to demonstrate good corporate citizenship. If you’re a laggard on methane, you’re more likely to be considered as an irresponsible partner both commercially and also in your local community. So I think oil and gas companies risk massive reputational and legal risks if they’re not managing methane effectively, notwithstanding the economic benefits.

Wright: What do you typically hear from operators in your conversations about methane management? Do you hear different things from operators in different parts of the world?

Goodman: Methane management is part of a number of important issues that we’re engaging with the industry on, including other pollution, health and safety, human rights, corruption and climate change. What we’re hearing on methane does vary. It’s fair to say in some emerging markets methane management is not often discussed by investors with those companies. But when we do address this topic in these markets, the companies show interest and want to know why it’s important to us, what they should be doing, how they should be disclosing, etc. So we’re often having positive and interesting conversations in these markets.

In the developed markets, there’s a difference. And I think there’s a distinction between Europe and North America. The EU companies, particularly the majors, are realizing it’s an important issue and are talking about it and disclosing at least some data. In private dialogue with North American companies, it is clear methane is often an important issue for them, but their disclosure is less convincing. It does vary around the world, but you also have this interesting phenomenon, where some companies seem to be doing a good job in private dialogue, but the disclosure lags behind what they are actually doing. We also see companies attempting to present their efforts in a better light than perhaps they deserve. It’s a complex mixture, which is why engagement is so important because we are able to view the reality on the ground through private dialogue.

For more information on EDF’s investor resources on methane mitigation, please see our recent report, An Investor’s Guide to Methane, or subscribe to our newsletter.

Global investor touts methane opportunity with oil & gas industry

Institutional investors worldwide are increasingly encouraging oil and gas companies to improve and disclose their management strategies to minimize methane risk.

Methane – an invisible, odorless gas and main ingredient in natural gas – is routinely emitted by the global oil and gas industry, posing a reputational and economic threat to portfolios.

Natural gas is widely marketed as a low-carbon fuel because it burns roughly 50 percent cleaner than coal. But this ignores a major problem: methane. Natural gas is almost pure methane, a powerful pollutant that speeds up Earth’s warming when it escapes into the atmosphere.

Last month marked a significant milestone in investor action on the methane issue. The Principles for Responsible Investment (PRI) launched a new initiative representing 36 investors and U.S. $4.2 trillion in assets that will engage with the oil and gas industry across five different continents to improve its methane management and disclosure practices. The PRI initiative complements existing methane engagement efforts focused on the U.S. led by the Interfaith Center on Corporate Responsibility and CERES.

EDF Senior Manager Sean Wright recently sat down with Sylvia van Waveren, a Senior Engagement Specialist with Robeco Institutional Asset Management, a Dutch-based investment firm managing over $160 billion, to discuss the matter and understand why some investors are keen to affect the status quo on methane.

Wright: Why is methane a focus of your engagements? What do you see as the risks of unmanaged methane emissions? 

Sylvia van Waveren, Senior Engagement Specialist, Robeco Institutional Asset Management

van Waveren: Methane is one of the most important drivers of engagement with the oil and gas industry. We invest in oil and gas companies worldwide. A year ago, we started engaging them, specifically on climate change – and within that the methane issue is included.

In the past, methane was viewed as a U.S. shale gas issue, but more recently it has become important in Europe as we learned that methane is a powerful greenhouse gas. So in that sense, we learned a lot from the U.S. discussions and we still do.

I would like to stress that we see the methane issue more as a business opportunity than a risk. What we often say to companies is that methane is a potential revenue source. It would be a waste if companies do not use it. 

Wright: The scope of PRI’s initiative is global, with investors from 3 different continents as far away as Australia and New Zealand, and a plan to engage with companies from the Latin America, Europe, North America and Asia-Pac. What does this level of global collaboration convey about methane emissions? 

van Waveren: I am happy and it is good to see that others have taken up the seriousness of this issue, as well.  Methane is no longer a U.S. only problem. The issue is being raised and discussed in all kinds of geographies.

I’m a firm believer in collective engagements. They can be a powerful force when the issue is not contained within borders. That is the case with greenhouse gases. So yes, I’m happy to see the PRI initiative taking off and I am an active believer in getting this solved and bringing attention to this subject.  

Wright: In your conversations thus far with companies about methane, what resonates best when making the business case for improving methane management and disclosure?

van Waveren: When we talk about motivation at the company level, I have to be honest, it’s still early days. The European companies are talking in general terms and just now conceptualizing methane policies. If we’re lucky, they have calculated how much methane is part of their greenhouse gas emissions. And if we’re more fortunate, they are producing regional and segregated figures from carbon, but it’s really very meager how motivated the companies are and what triggers them most.

I really feel we should emphasize more with companies to get them motivated and to really look at the seriousness of methane. One issue that is particularly bothersome is that many companies do not know how to calculate, estimate and set targets to reduce methane. It is still a mystery to many of them. That’s why we come in with engagements. We need to keep them sharp on this issue and ask them for their actions, calculations and plans. 

Wright: Who are other important allies that have a role in solving this problem, and why?

van Waveren: We always would like to have an ally in the government. For example, carbon pricing or carbon fixations are all topics that we look for from the government. But in practice, that doesn’t work. Governments sometimes need more time. So we do not always wait for the government. When companies say they will wait for government, we say, “You should take a proactive approach.”

We rely very much on our knowledge that we get from within the sector. We review data analyses and make intermediate reports of scoring. We find best practice solutions and we hold companies accountable. There are also times when we name names. So in that sense, that is how engagement works. The data providers and other organizations with good knowledge and good content on methane – and EDF is certainly one of them – are very instrumental to get the knowledge that we need.

Wright: Can you give me an example of a widespread financial risk facing an industry in the past that was proactively improved by investors leading the charge – similar to this initiative?

van Waveren: More than 20 years ago, we had a greenhouse gas issue – acid rain. Investors helped solve that problem. Because of this, I’m hopeful that investors can also play a positive role in reducing methane.

I would also say the issue of Arctic drilling. Not so long ago, this was top of mind when we talked to our portfolio companies. A lot of companies have now withdrawn from Arctic drilling, especially from offshore Arctic drilling. I think investors were quite successful in sending a clear signal to the industry in a collective way that we didn’t see Arctic drilling as a good process. Maybe profitable – if at all – to the companies, but certainly not for the environment.

Wright: Thank you, Sylvia. We really appreciate your time and your thoughtful answers showing how investors can be part of the solution on methane.

Careful what you wish for: Trump’s environmental attacks will harm industry

In the same week Apple raised $1 billion through green bonds to invest in clean energy, and Amazon put solar panels on a million square foot processing facility, the Trump administration – at the urging of the worst elements in the oil and gas industry –proposed a two-year delay of sensible rules that would limit emissions of methane and other air pollutants. While a federal court since struck down a previous 90-day delay as unlawful, the two-year delay is still subject to public comment, and many expect the administration’s attacks on methane safeguards to continue through other means.

Natural gas, which is mostly methane, has been put forward as a cleaner alternative to other fossil fuels and as an energy resource that can play a key role in the transition to a lower-carbon future. But now more than ever, that proposition is now called into serious question.

How will natural gas compete in a changing world?

Every year, oil and gas operations around the country emit some 8-10 million metric tons of methane into the air. Methane is a highly potent greenhouse gas, responsible for about a quarter of the climate warming we’re experiencing today – and those emissions come mingled with a host of other smog-forming and carcinogenic pollutants.

There are cost-effective, proven ways to reduce these emissions, and leading companies are already implementing them. The problem is, many companies refuse to address the problem on their own. And now they’re looking to the Trump administration for a free pass to pollute.

When trade associations like the American Petroleum Institute attack cost-effective policies that protect public health and the climate, it sends a signal that the natural gas industry will do everything it can to maximize short-term profits – even at the risk of damaging the reputation of the industry in the eyes of the public and jeopardizing its ability to operate over the long term.

The question is: In an increasingly carbon constrained world, what is the natural gas industry’s plan for the future?

We’re not arguing that gas is at risk of going away tomorrow. The United States leads the world in natural gas production, as new technologies and processes have unlocked massive, cheap reserves. But make no mistake, the transition to cleaner energy in the U.S. and across the globe is irreversible and accelerating. In this context, fighting reasonable and necessary emissions rules only magnifies risk for the natural gas industry and its investors. It’s a head-in-the-sand approach that ignores the realities of what consumers, communities and markets demand.

Capital markets shifting to cleaner companies and forms of energy

The Trump administration’s recent moves come at a time when environmental concerns informing investment decisions are reaching record highs. For example, investors with $10 trillion in assets under management have committed to the Montreal Carbon Pledge to reduce the carbon footprint of their portfolios, with an eye towards portfolio de-carbonization in the long run.

As part of the shift to assets in lower emitting companies and industries, investors are demanding better carbon and methane disclosure as well as proactive environmental management. The recent watershed Exxon vote, in which 62% of investors (including industry titans like BlackRock and Vanguard) demanded better climate risk disclosure from Exxon management, showed that carbon risk considerations have hit the mainstream.

Increasingly, investors see methane simply as a form of carbon risk in need of management, not neglect. And methane waste can be cost-effectively managed – as proven in states like Colorado where production has continued apace even as strict methane rules have come on the books.

On top of investors’ efforts to shift portfolios towards cleaner companies, the divestment movement also continues to grow, driven by a range of environmental risks of owning fossil fuel stocks. Just recently mainstream investor CalSTRS divested from coal. Going forward, increasing numbers of investors will look carefully at the environmental record of oil and natural gas companies in determining their comfort level in continuing to invest.

Some companies lead but no substitute for commonsense rules

Companies like Southwestern Energy, Noble, Shell and others have led on methane emissions by setting methane targets, supporting state-based regulations, and working with the Oil and Gas Methane Partnership to disclose methane emissions. Their efforts certainly deserve recognition, and are supported by some investors who factor strong methane management into investment decision.

Still, voluntary actions by the few are no substitute for rules and oversight that require responsible operations by the thousands of oil and gas companies operating in the United States. Some of these companies simply lack a commitment to sustainability and to operating over the long-term, and will not rein in emissions unless they are required to do so by law.

Methane safeguards serve the long-term interests of industry and investors

As the scientific reality of climate change and consumer demand steer the world toward a cleaner energy future, will attacks on environmental protections inflict lasting damage on the oil and gas industry? Only time will tell. It’s likely, however, that if the loudest industry voices continue to oppose rules that could guide it toward a cleaner future, the industry as a whole will suffer.  Unfortunately, that will include the more forward-leaning companies, which will be dragged down by their intransigent peers. This outcome will become all the more likely thanks to the Trump administration’s erosion of environmental safeguards that are fundamental to responsible development.

It’s time for oil and gas operators and mainstream investors with a long-term view to take a look at what rules and regulations are needed to rein in methane emissions in their industry. And they also need decide if they want to align themselves with an administration whose policies may be unwittingly handicapping the very industry it attempts to serve.