Report: Oil & Gas Companies Under-reporting Key Investment Risk from Methane

Stronger disclosure crucial for risk management and bolstering public trust

January 11, 2016
Contact: 
Steven Goldman, 202-572-3357, sgoldman@edf.org

(Washington, D.C. – January 11, 2016) Leading oil and gas companies are putting themselves and their investors at financial and reputational risk by failing to adequately disclose meaningful information on emissions of methane, the heat-trapping pollutant that is drawing increased scrutiny from regulators and the public. A new report by Environmental Defense Fund finds that none of the 65 market leaders reviewed in the production and midstream segments disclose targets to reduce methane emissions and less than a third report such emissions via accessible, investor-facing data sources.

Methane – the key component of natural gas and a greenhouse gas 84 times more potent than carbon dioxide – is responsible for more than a quarter of the warming we are experiencing today and represents a fast-emerging form of carbon risk for investors. The oil and gas industry releases seven million tons of methane annually in the United States alone, according to the Environmental Protection Agency.

“As a shareholder with a global portfolio, we have a financial stake in the long-term performance of the natural gas industry,” said Jack Ehnes, CEO of CalSTRS, one of California’s largest pension funds, and author of the report’s foreword. “However, for the gas industry to be part of the solution in the needed transition to a low-carbon global economy, methane emissions – which reduce the potential climate benefits of natural gas over other fossil fuels – must be actively managed. Improved methane disclosure is one important piece of the climate change risk management puzzle.”

The report, “Rising Risk: Improving Methane Disclosure in the Oil and Gas Sector,” examines the current state of voluntary reporting on methane in the U.S. oil and gas sector. The authors found that the data which is publicly disclosed through sources like CDP questionnaires, corporate sustainability/CSR reports and 10-K filings is generally low in quality and lacks rigorous and standardized metrics, making comparisons among operators difficult.

The “Rising Risk” report provides a number of pragmatic, forward-looking recommendations to improve methane disclosure centered around four key methane metrics that aim to bring a level of standardization and quantitative rigor to methane reporting. Operator and disclosure platform adoption of these metrics will help give investors much-needed meaningful information to properly assess risk from methane.

“The global agreement in Paris this December buried any confusion regarding the direction of the world economy: the future is low-carbon,” said Chris Fowle, Vice President of Investor Initiatives for sustainability reporting organization CDP. “Investors preparing for that future depend on a bedrock of accurate emissions disclosure, including risky methane, which CDP is committed to providing. Companies who fall behind on transparency could see themselves locked out of a new and growing suite of investment vehicles.”

Methane emissions from the oil and gas sector are increasingly viewed as a financially material issue for companies, and by extension, their investors. Every pound of methane allowed to escape represents not only a loss of sellable product, but also undercuts natural gas’ climate benefits as a fuel source. A 2015 study by the Rhodium Group found that the sector loses $30 billion globally each year from leaked or vented methane at oil and gas facilities.

Potential liability issues that can arise as a result of methane leaks are starkly illustrated by the massive leak currently underway at the Aliso Canyon storage facility in California, which has cost $50 million for mitigation of environmental and community impacts, over $12 million in lost product to date and reputational damage. The Aliso Canyon leak is a large example of the types of leaks that occur daily across the world’s oil and gas infrastructure.

The analysis comes at a time of increased scrutiny from both investors and regulators on when and how fossil fuel companies are reporting on greenhouse gases and climate risks. Shareholders filed 83 resolutions in 2015 related to carbon accounting and risk management disclosure. Further, investors have been making their voices heard specifically on methane, filing 15 methane-related shareholder proxies from 2014-2016, urging companies to better disclose and manage their methane emissions.

“Some leading companies are already instituting best practices to reduce emissions, but without rigorous, consistent data, investors can’t gauge progress, manage risks, or compare company performance,” said lead author Sean Wright, a manager in EDF’s Corporate Partnerships Program. “Improved corporate disclosure can show investors that company management is serious about addressing this rising risk, and encourage other companies to start on the path of continuous improvement.”

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