Introducing our new investor insights platform, and inaugural research on how to fix flaring
Building a thriving net zero future for people and the planet is the defining challenge of our time. Solving the climate crisis requires immediate action from all corners of the global economy, but carbon-intensive sectors play a particularly important role in the transition to a net zero carbon future.
Many investors in these areas — such as oil & gas, transportation, and agriculture – have begun to look more closely at the private sector’s environmental, social and governance (ESG) performance. However, assessing environmental performance in carbon-intensive industries remains challenging thanks to complexities in their operations and in the relevant climate science, as well as data gaps that limit analysis and comparisons.
Against this backdrop, EDF+Business is pleased to launch ESG By EDF, a new platform to help equip the finance community with actionable insights for a decarbonizing world. Leveraging Environmental Defense Fund’s independence and our deep scientific, economics and policy expertise, ESG By EDF will publish data-driven analysis and tools to help manage climate risk, assess opportunities, and accelerate urgent action in the sectors that matter most.
What investors need to know about flaring
Our first research report looks at natural gas flaring, the wasteful and polluting practice by which oil and gas companies burn or simply release natural gas due to gaps in planning, practices, and incentives.
When they function as designed, gas flares waste billions of dollars of natural gas each year and emit carbon dioxide, smog-forming nitrogen oxides, and other pollutants that are damaging to human health. When they don’t function correctly, which EDF research has found to be surprisingly common, flares can dump large volumes of climate-warming methane directly into the atmosphere.
In our new report, The Burning Question: How to Fix Flaring, we review flaring data and practices for 20 major oil and gas companies. We analyze performance, identify best practices that reduce flaring emissions, and recommend specific questions that investors should be asking companies, to deepen their engagement with oil and gas companies on this issue.
The bad news: a lot of flaring is taking place. Companies flared 142 billion cubic meters of gas last year, according to the World Bank, or about 4% of global natural gas production. Over that period flaring generated 250 million tons of CO2 from gas combustion, and released methane that likely pushed the warming impact of flaring to more than 1 billion tons of CO2 equivalent, or 2% of total global emissions.
The good news: solutions abound. Most flaring is avoidable through planning and sound management, and avoiding the practice is in companies’ own interest.
Flaring has been called a “black eye” for oil and gas, a highly visible display of pollution and waste that erodes public confidence in operators.
Eliminating routine flaring and minimizing event-based flaring is a key first step for energy companies working to reduce their climate-warming emissions. When oil and gas companies curtail flaring, they are not only reducing climate and public health impacts but also employing best practice from a risk management and governance perspective.
Flaring is also affordable to fix. In many cases, it can be reduced or eliminated at reasonable cost by integrating flaring abatement into management strategy and processes – for example, aligning infrastructure development plans so that natural gas offtake capacity aligns with production. At today’s elevated gas prices, abatement is an increasingly attractive proposition.
Investors can set off a race to the top
Our new research shows a wide range of flaring practices across the energy industry. All the companies we reviewed have work to do, and we identified next steps for each based on where they stand today. Companies that we assessed with the lowest flaring ratios – bp, Devon, EOG, Equinor, Occidental, PetroChina, Pioneer, Saudi Aramco and Shell – have taken steps toward eliminating routine flaring, and most are making progress on disclosures so that investors and other stakeholders can evaluate their progress.
For those companies whose flaring performance lags behind – ExxonMobil, Hess, and CNOOC – we suggest starting with adoption of the World Bank’s Zero Routine Flaring by 2030 initiative and development of transparent plans to meet that goal.
To keep tabs on flaring, investors need robust, reliable data. That is why we identify three key metrics that all oil and gas companies should disclose. With timely publication of data on absolute flaring volumes, flaring intensity, and routine flaring levels, investors can hold the sector accountable to their goals. Another reason for disclosure: remote monitoring tools that track both flaring and other methane emissions are improving rapidly, and companies will find it increasingly difficult to hide their impacts through silence.
For climate-aligned investors, it is not enough that the companies they finance address only their own operations. The oil and gas industry is at a regulatory crossroads, with new rules under consideration that would set high standards for methane emissions, climate-related financial disclosures, and more.
To show leadership, energy companies that have adopted strong flaring targets should advocate for effective regulations that set a level playing field for all companies. Investors, too, can use their influence to support regulations that reinforce and support their climate criteria.
With global leaders from across society congregating at COP26 in Glasgow next month, all eyes are on the special role for methane reductions to limit global temperature increases. It’s time for investors to help make flaring a thing of the past.