Global investors face significant environmental, social and governance risk stemming from a vast network of commercial oil and gas projects owned by the companies they hold shares in but which are controlled by third-parties, according to a new paper released by Environmental Defense Fund (EDF) and Rockefeller Asset Management.
The analysis, “Emission Omission: A Shareholder Engagement Guide to Uncovering Climate Risks from Non-Operated Assets in the Oil and Gas Industry” evaluates production exposure, methane disclosure and target coverage of nine Oil and Gas Climate Initiative (OGCI) companies. Building on EDF’s 2018 report, the Next Frontier, the paper offers technical guidance for investors to constructively engage companies to reduce ESG/climate risk.
“Climate risks from non-operated assets may have risk-and-return implications for oil and gas investors as companies continue to finance natural gas infrastructure,” said Meredith Block, Senior ESG Analyst and Senior Vice President, Rockefeller Asset Management. “Now is the time for investors to call companies to action and encourage them to establish methane targets that cover 100% of their production volumes, across all of their assets.”
OGCI companies reviewed in the analysis include bp, Chevron, Equinor, Eni, ExxonMobil, Oxy, Repsol, Shell and Total. Their non-operated assets range from 19% to 66% of company production, with five of the nine companies deriving more than half their output from facilities run by third-parties.
“Non-operated assets are largely unaccounted for in companies’ ESG disclosures, elevating risk for oil and gas shareholders,” said Dominic Watson, Project Manager for EDF +Business, and one of the lead authors. “As customers, regulators and companies embrace a low-carbon economy, investors need to understand key exposure points to long-term value.”
The paper notes the oil and gas sector has significant work to do but some companies have taken important steps to address emissions from their own operations and non-operated sources. For example, bp aims to reach a methane intensity target of 0.20% in its operations by 2025, using a measurement approach, and will support its partners to reduce methane emissions.
“One of bp’s aims toward reaching net zero by 2050 or sooner and helping the world get there includes reducing methane emissions in our own operations. We are also working to influence our non-operated partners to set their own methane intensity target of 0.2%,” said Sayma Robbie, Senior Vice President Non-Operated Joint Ventures for bp and author of the report’s foreword. “Reducing emissions from non-operated assets is an important issue for our industry and we welcome engagement from investors and other stakeholders to identify solutions and help companies lower emissions across the natural gas value chain.”
Many of the largest non-operated assets are managed by government-controlled national oil companies (NOCs). The most significant non-operated assets identified in the paper involve NOCs, which currently operate nearly 51% of global gas and 58% of global oil production. The management and disclosure of greenhouse gas emissions from NOC entities are largely unknown.
“The role of government-controlled oil companies in contributing to avoidable methane emissions has been overlooked for too long. Companies report revenue generated from assets owned in partnership with national oil companies but rarely account for their associated emissions,” explains Stephanie Pfeifer, CEO, Institutional Investors Group on Climate Change (IIGCC). “The guidance published today will help investors in engaging with companies across the sector to make this mismatch clear and ensure the issue is higher up the agenda.”
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