We’ve previously introduced our readers to the Chemical Footprint Project (CFP), a benchmarking survey that evaluates companies’ chemicals management practices and recognizes leaders. The CFP recently released a Model Chemicals Policy for Brands and Manufacturers, a template to help companies develop and share their chemicals policies. A chemicals policy institutionalizes a company’s commitment to safer chemicals and ensures understanding of these goals among all levels of their business, including the supply chain. Read more
When two large storms knocked out an estimated $200 billion in economic value within a week, critical gaps in our infrastructure preparedness were laid bare. The 2016 “Hell or High Water” series from ProPublica and The Texas Tribune predicted a scenario that “visualizes the full spectrum of what awaits Houston” if it were hit by a large-scale hurricane. Experts consulted for the series cite Houston’s unimpeded development as a principal factor contributing to the region’s high exposure to flood risks.
According to Rice University engineering professor Phil Bedient, there is no way to design a system to handle the volume of water that Hurricane Harvey dumped on the greater Houston area. That said, if Houston hopes to arrive at a cost effective solution for mitigating future flood damage, Bedient recommends targeted, balanced investments in green and gray infrastructure. Read more
Environmental Defense Fund Q&A with Tim Goodman, 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.
This post originally appeared on Forbes.
Recently, at an oil and gas industry event co-hosted by Energy Dialogues and Shell in Houston, Ben Ratner, a Director at Environmental Defense Fund, met up with Michael Maher, presently with Rice University’s Baker Institute for Public Policy and a former longtime economist with ExxonMobil, to discuss the future of the natural gas industry. Specifically, they talked about the growing divide between those—in government and in the industry—who want less environmental regulation, particularly over the issue of methane emissions, and those who see sensible regulation as the best way for the industry to assure its future as offering a cleaner alternative to other, dirtier, fossil fuels.
Since Michael and Ben met in Houston, the Trump Administration announced the U.S. departure from the Paris climate agreement and postponements and potential weakening of methane emission rules from the Environmental Protection Agency and Bureau of Land Management. These new developments put the industry divide into sharper focus.
States could now step up to address issues that the federal government was poised to take the lead on under rules promulgated by President Obama toward the end of his term. But will states act without industry prodding or at least, support for action? And will companies most worried about license to operate intervene against delays, weakening, or even elimination of nationwide standards? Mike and Ben discuss below.
Ben: As a former oil and gas industry employee, how do you think the industry should respond to the regulatory rollbacks of the Trump administration?
Michael: This administration is moving rapidly away from a federal role in climate change policies. The question for the oil and gas industry is whether to sit back and coast on the federal failure to act or to work with states to address greenhouse emissions. Coasting may look like a cost saver for the near term, but the pendulum will eventually swing back, and a reversal of Trump’s policies is a real prospect down the road. However, if enough states—with industry support—were to effectively address methane emissions it could provide guidance for federal action down the road and protect the industry against the reputational damage of being seen to have resisted sound environmental regulation.
Michael: In the current political climate, what do you see as the role of leading companies?
Ben: The great irony here is that while the Trump attacks on environmental standards are intended to help industry by reducing costs in the short term, they may end up inflicting much greater long-term damage. A classic case of “short term gain, long term pain.”
Energy consumers, institutional investors and citizens want cleaner energy, and scrapping rules that help the industry clean up may ultimately endanger the industry’s social license to operate and make it more difficult to do business. So we will be looking hard to see which companies step forward to slow down the deregulatory torrent that is tarnishing the industry’s reputation just as demand for cleaner energy is lifting off.
In recent days, Shell and Exxon reportedly stated that they are complying with EPA’s contested methane rules, but other companies have stayed silent. Companies like ConocoPhillips and BP voiced their support for the Paris international climate agreement. With the U.S. now withdrawing from the Paris accord, will companies like these make good on addressing climate change by publicly supporting policies aimed at reducing methane emissions? We haven’t seen true industry support at the federal regulatory level, at least not yet.
At the same time, regardless of what happens in Washington, states have a golden opportunity to develop their own methane policies. In Colorado, for example, companies like Noble Energy and Anadarko worked with EDF and the state to negotiate methane and air pollution standards that work for business and the environment.
Industry played a vital role in Colorado’s success, and there will be more opportunities for industry leaders to participate in regulatory development in other states.
Ben: Are there business and reputational impacts of failing to address methane emissions?
Michael: Natural gas has historically competed with other sellers with other fuels almost totally on price. But customers and officials are increasingly looking at energy options based on environmental benefits and not just price. There is a robust debate in the Northeast, for example, about how to move forward in decarbonizing their electric power system and it is not focused solely on the costs of alternatives.
In this regard, it is in the interest of the natural gas industry to be able to promote natural gas as a much cleaner alternative to coal. But methane and associated emissions from natural gas drilling operations cloud that cleaner-than-coal claim and plays into the hands of those supporting a more rapid shift to renewables and who argue for “keeping it in the ground.”
Michael: How does EDF view methane control as part of a company’s social responsibility?
Ben: How a company manages its natural gas leaks tells you a great deal about how responsible it is, because leaks cause climate damage and can harm people’s health—especially among the most vulnerable, like children and the elderly. Also, since methane is a commercial product, if a company doesn’t know or care how much of its own product is going into thin air, that’s not a good sign.
Southwestern Energy is one example of a leader that sets a methane target, conveys to its people the value of methane management, and implements leading practices in the field. Another is Statoil, which is working with EDF and an entrepreneur to pioneer efficient new automated methane monitoring technology. These kinds of efforts can deliver financial value by recouping lost product, and demonstrating to investors, communities and other key stakeholders their lived commitment to responsible corporate behavior.
Ben: How do you see the industry tackling the methane problem?
Michael: Farsighted, well operated companies are already taking action to cut emissions, but sometimes the policy advocacy lags behind. There needs to be leadership on this issue from major players—not just singly but as a coalition urging federal agencies to retain or improve rules, rather than delay or weaken them. This coalition should also engage states in developing sound regulation of new drilling and older wells.
Some in industry are already pushing ahead with testing new technology that would reduce the cost of controlling emissions. That effort should continue, but voluntary action of this sort is not a replacement for regulations that apply across the entire industry. Nor will piecemeal voluntary efforts of a few overcome the stigma of hundreds of other companies abstaining from action to reduce their methane emissions.
Michael Maher is a senior program advisor at the Center for Energy Studies at Rice University’s Baker Institute for Public Policy
Ben Ratner is a Director with EDF+Business at Environmental Defense Fund
To address the world’s most pressing environmental challenges, we must catalyze large-scale private investment in innovative environmental solutions. One place where such solutions are greatly needed is Louisiana, where more than 2,000 square miles of coastal land have vanished since the 1930s, putting communities and industries at risk from the effects of rising seas and increased storm surges.
This week, EDF begins work to develop the nation’s second Environmental Impact Bond, with support from NatureVest’s new Conservation Investment Accelerator Program, the conservation investing unit of The Nature Conservancy. In collaboration with our partners, Quantified Ventures and Louisiana’s Coastal Protection and Restoration Authority, EDF will bring public, private and non-profit resources together to accelerate Louisiana’s coastal restoration and resiliency plans through a new Louisiana Coastal Wetland Restoration and Resilience Environmental Impact Bond.
Coastal wetlands are a form of “natural infrastructure” that provide storm protection by attenuating wave energy. Continual loss reduces these protective services, potentially increasing damage from a single storm by as much as $138 billion and generating an additional $53 billion in lost economic output from storm disruptions. If no actions are taken to restore and protect the coast, Louisiana could lose an additional 1,750 square miles of wetlands by 2060, posing a direct risk to as much as $3.6 billion in assets that support $7.6 billion in economic activity each year.
Can sustainable finance help save Louisiana’s Gulf Coast?
While Louisiana expects 15 years of Gulf oil spill-related funds to support restoration work, the state has identified less than half of the funding necessary. A pay-for-success environmental impact bond backed by these cash flows can help to close this funding gap by mobilizing funds from the private sector to accelerate the pace of restoration project implementation. Restoring the coast earlier in the planning horizon will allow the state to realize long-term cost savings.
Pay-for-success (PFS) is a form of performance-based contracting that ties payment for service provision to the achievement of measurable outcomes. The PFS model has emerged as a promising approach to fund social and environmental innovation. Quantified Ventures, a pay-for-success transaction specialist, paved the way for applying PFS in an environmental context with the development of DC Water’s 2016 Environmental Impact Bond (EIB).
In September 2016, the District of Columbia Water and Sewer Authority (DC Water) raised $25 million from institutional investors Goldman Sachs Urban Investment Group and Calvert Foundation to finance the construction of green infrastructure projects that will reduce the volume of stormwater runoff entering the sewer system, thereby reducing combined sewer overflow events. If the projects perform as expected, DC Water will pay investors in accordance with the initial term rate of 3.43%. If the project outperforms expectations, DC Water will make an additional payment to investors for sharing its risk in the project. If the projects underperform expectations, then investors will make a payment to DC Water.
By sharing project risks between public and private sector partners, environmental impact bonds allow public entities to support innovative environmental solutions and private entities to put their risk-seeking capital to work. Given that sea level rise, land subsidence, storms and hurricanes add uncertainty to the successful outcome of wetland restoration, an EIB can shift part of a restoration project’s risk from Louisiana’s Coastal Protection and Restoration Authority (CPRA) to investors.
In collaboration with CPRA, EDF will select a wetland restoration project from Louisiana’s 2017 Coastal Master Plan to demonstrate the feasibility of an EIB for coastal restoration. This EIB will serve as a blueprint for investments in coastal resilience throughout Louisiana and other coastal states. We expect it may even usher in a new era of private investment in coastal resilience to help cities in the U.S. and across the globe that are already experiencing the adverse effects of climate change and are looking for solutions.
Public, Private, and Non-profit collaboration needed for a sustainable future
The amount of capital required to transition to a low-carbon economy, adapt our infrastructure to cope with the damaging effects of climate change, and preserve healthy ecosystems far exceeds the capacity of the philanthropic and public sectors alone. Of the estimated $1.5 trillion annual investment needed, roughly $700 billion is currently being invested. Innovative green investment products – like environmental impact bonds and green bonds – are helping to fill the $800 billion funding gap that remains.
We recognize that financial institutions have a role to play in addressing environmental challenges that goes beyond their direct investment dollars. EDF’s sustainable finance strategy seeks to leverage the influence, expertise and capital of the financial marketplace to protect the environment, improve livelihoods and achieve the ambitions goals in Blueprint 2020.
The project is funded by NatureVest, the conservation investing unit of The Nature Conservancy (naturevesttnc.org), through its Conservation Investment Accelerator Grant. With this support, EDF has an exciting opportunity to demonstrate how collaboration between the public, private, and non-profit sectors can address a critical environmental issue. We are excited to be working with Quantified Ventures and the state of Louisiana on this pilot project and hope that it will serve as a model for crowding-in private capital for coastal resiliency and restoration projects around the world.
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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?
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.
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.
Today EDF released a new report, Smart Innovation: The Opportunity for Safer Preservatives, which offers a framework for safer chemical and product development. The report details baseline toxicological information on a select set of preservative chemicals used in personal care products, and makes the case for why and how access to uniformly developed sets of chemical health and safety information can help drive safer chemical and product innovation.
Consumers are demanding safer products for their homes, schools, and places of work. Growing awareness about the health and environmental impacts of chemicals is driving this demand. The entire consumer goods supply chain, from chemical manufacturers to retailers, plays a significant role in ensuring products on the market are healthful—i.e. made up of ingredients or materials that are as safe as possible and support healthy living.
How can we use data to strengthen the marketplace and ensure better innovation and competition for safer chemicals? Companies introduce new products into the marketplace all the time, but too few strive towards innovation that is safer for people and the planet. We need innovation that generates ingredients and materials that not only perform, but are also safer than their predecessors. Smart innovation is data-driven, deliberate, and delivers solutions that support health.
Unfortunately, the lack of availability and access to comprehensive and transparent toxicological information on chemicals across the supply chain continues to be a major obstacle to smart innovation. Such baseline information is invaluable for setting safer chemical design criteria that chemical and product developers can integrate into their R&D efforts.
In EDF's new report, we demonstrate how this type of information can be useful in the pursuit of safer preservatives – an ingredient class that has garnered much regulatory and market scrutiny. For example, major retailers like Walmart, Target, and CVS have published chemicals policies that aim to drive chemicals of concern off their shelves while ensuring consumer access to safer chemicals and products. Preservatives are present on each of these retailer’s lists of chemicals targeted for removal.
Ultimately, delivering products to the marketplace that use the safest possible ingredients requires concerted effort and informed, smart innovation. Our report discusses how this can be achieved via the creation of a collective Chemicals Assessment Clearinghouse that is leveraged across the supply chain. Such a Clearinghouse would provide a strategic intervention to unlock safer chemicals innovation to benefit companies, consumers and the environment.
With the U.S. role in the Paris Climate Agreement hanging in the balance, over 280 investors managing a collective $17 trillion in assets spoke up in support of the agreement:
As long-term institutional investors, we believe that the mitigation of climate change is essential for the safeguarding of our investments. . . . . We urge all nations to stand by their commitments to the agreement.
Why do investors care? As pointed out in a blog earlier this year, for investors, it all comes down to risk and return. And, where climate change is concerned, this is a risk that is omnipresent.
Simply put, investors cannot diversify away from the risks of climate change. Unlike other risks such as currency fluctuations or new regulations, the disruptive impacts of climate change on the global economic system are so pervasive they cannot be offset by simply shifting stock portfolios from one industry to another.
A study from Cambridge University found equity portfolios face losses of up to 45% from climate shocks, with only half of these losses being “hedgeable.” Likewise, The Economist Intelligence Unit estimates that investors are at risk of losing $4.2 trillion by 2100, with losses accruing across sectors from real estate to telecom and manufacturing.
Because investors recognize that climate risk is unavoidable, they support a coordinated global effort as envisioned in the Paris Agreement. It is also why investors have already expressed such strong support for regulatory limits on carbon and methane emissions. Governments globally will need to take further proactive action to limit greenhouse gases, and incentivize technology shifts towards lower-carbon energy.
Seizing opportunities in a low-carbon economy
Technology changes will require significant adjustments in how global capital is allocated, which is an opportunity investors are eager to seize because of the promise of risk-adjusted returns in the space.
It is estimated that a shift to a clean-energy economy will require $93 trillion in new investments between 2015 and 2030 and the rise of impact investing shows markets are starting to respond to opportunities in renewable energy, grid modernization, and energy efficiency among others.
For example, the green bond market has grown from $11 billion to $81 billion between 2011 and 2016 with projections for 2017 as high as $150 billion. On top of this, leading global investment banks have already pledged billions towards sustainable investing.
And where capital flows, so do jobs.
As we’re seeing in the US, renewable energy jobs grew at a compound annual growth rate of nearly 6% between 2012 and 2015 and the solar industry is creating jobs 12 times faster than the rest of the economy. Similarly, the methane mitigation industry is putting Americans and Canadians to work limiting highly potent emissions from oil and gas development.
Technology and capital changes are already happening, but are unlikely to happen quickly enough on their own. Government policies and frameworks that speed this transition, like a price on carbon, will be critical.
Which brings us back to the importance of the Paris Agreement…
The Paris Agreement is crucial to addressing climate change
Investors vote with their dollars, and are strongly backing U.S. participation in the Paris Agreement. Global investors understand the risk of climate change and see the Paris Agreement as a good return on investment, with an optimistic $17 trillion nod to the power of capital markets to provide the innovation and jobs we need if the right policies are in place. The U.S. administration should ensure it is considering the voice of investors and the capital they stand ready to put to use as it makes its decision.
A global group of 30 leading institutional investors coordinated by the PRI (Principles for Responsible Investment) has announced a new initiative that will encourage oil and gas companies, including gas utilities, around the world to initiate or improve efforts to measure, report, and reduce methane emissions. The move is the latest evidence that investors are concerned with the financial, reputational and environmental risks associated with unmonitored and unchecked methane venting and leakage.
Methane is a potent greenhouse gas with over 80 times the warming power of carbon dioxide over a 20-year timeframe. It’s responsible for about 25% of the warming our planet is experiencing today. Globally, the oil and gas industry is among the largest man-made sources of methane.
Methane is also the main ingredient in the natural gas, the product that major global producers have marketed to investors as central to their growth in the years ahead. Companies tout gas as a clean, low-carbon fuel, ignoring the vast amounts of unburned methane escaping from their systems each year, or the lack of transparency with regard to monitoring and reduction strategies.
The owners and asset managers involved in the PRI’s methane initiative oversee more than $3 trillion. They are global in scope, representing a dozen countries across North America, Europe and Asia-Pacific. PRI plans to engage 29 companies on four continents, from across the natural gas supply chain (the names aren’t being made public). They will be urging greater transparency and stronger, more concrete actions, including setting methane targets and participating responsibly on methane policy.
A centerpiece of PRI’s ongoing efforts to improve companies’ methane management and disclosure will be the Investor’s Guide to Methane, published jointly with EDF last fall. PRI’s global methane initiative complements ongoing U.S. engagement efforts on methane led by the Interfaith Center on Corporate Responsibility and CERES.
Trumping Shortsighted Politics
This is an uncertain time for the methane issue globally. On the one hand, President Trump and many U.S. lawmakers are trying to roll back methane policies established during the Obama administration. On the other, officials in Canada are expected to release draft oil and gas methane regulations this year, and similar rules are being developed in Mexico.
Political backpedaling from methane controls is shortsighted and counterproductive for both industry and environment, ignoring one of the biggest and most cost-effective opportunities we have to slow the warming of our globe. But these major investors, whose long-term investment horizons require them to look beyond the short-term calculus that dominates both politics and executive compensation packages, are taking a view to match their financial stake in the industry’s future.
What they see is a growing liability for an industry looking to the production and delivery of natural gas a growth engine over the coming decades. The problem isn’t going to go away, no matter what they’re saying in Washington.
Producers like BP, Shell and Chevron routinely cite rising global demand for natural gas as a primary driver of growth and valuation. But in markets for new electric generating capacity, natural gas is increasingly competing on a cost basis with clean, renewable sources like wind and solar. Failure to deliver on its frequent promises to deliver a more climate-friendly energy choice puts the gas industry and its investors at risk.
That makes methane the key variable. Conservative estimates are that, worldwide, companies are releasing at least 3.5 trillion cubic feet of methane to the atmosphere each year. That’s about the same amount as all the gas sold by Norway – the world’s seventh largest producer. Besides being a huge climate problem, it’s also a huge waste of a valuable product, and perhaps an indicator that attention to the integrity of operations is not as great as what companies claim.
Industry Awakens to the Problem
Concern about methane isn’t limited to oil and gas investors. There’s growing awareness within the industry itself that methane poses a reputational risk, sparking some companies to start addressing the challenge.
For example, 10 of the world’s largest oil and gas companies – BG Group, BP, Eni, Pemex, Reliance Industries, Repsol, Saudi Aramco, Shell, Statoil and Total – recently launched the Oil and Gas Climate Initiative (OGCI), a billion-dollar investment to accelerate commercial deployment of low carbon energy technologies. Their primary focus will be carbon capture and storage and reducing oil and gas methane emissions.
Similarly, the Oil and Gas Methane Partnership (OGMP), a voluntary effort to improve emissions reporting and accelerate best methane reduction practices recently issued its first annual report, detailing emissions found in nine key source categories throughout individual operator’s systems. Launched in 2014, participating companies include BP, Eni, Pemex, PTT, Repsol, Southwestern Energy, Statoil, and Total.
First Steps toward Big Benefits
These are crucial first steps for the industry, and is a sign that companies looking for ways to adapt to the changing climate surrounding its business. But the industry still has a very long way to go. Fixing the problem could yield huge benefits: A 45% reduction in global oil and gas methane emissions would have roughly the same climate impact over 20 years as closing one-third of the world’s coal fired power plants.
Investor calls for action on methane are quickening and now industry needs to show shareholders it will take the necessary steps to deliver on the low-carbon fuel promise of natural gas. Investors want to invest in well-run companies with good governance, and increasingly look to methane as a proxy for efficient operations. As company executives think about how to attract capital, they will be well-served to note this emerging dynamic and proactively get ahead of the issue.