Investors: Methane Targets Wanted

on April 24, 2018 at 10:00 AM

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.

Investors are clear about the benefits of targets

Investors have filed 47 resolutions in 2018 asking companies to set GHG emissions reduction targets with companies such as Apple, Ford and Verizon. On the important issue of methane, investors have filed 10 resolutions with companies including Chevron, Range and Kinder Morgan (seven have been withdrawn as of writing), and over 38 have been filed in the last three years alone.

With mainstream investors highlighting the need for targets, companies would do well to get ahead of this trend especially as investors tilt portfolios towards companies preparing for a lower-carbon future. Financial industry heavy-weight State Street said they, “view establishing company-specific GHG emissions targets as one of the most important steps in managing climate risk.” Companies should note that State Street has supported over 90 percent of methane-related shareholder proposals in the past two years.

Oil and gas industry needs to respond

Imagine the investor reaction if a company simply said, “We plan on increasing our profit at some point in the future, but can’t tell you how by much or when that may happen.” Unfortunately, that is basically the current state of play when it comes to methane targets.

Our recent report The Disclosure Divide found only four companies of the top 65 companies operating in the U.S. have time-bound, quantitative methane targets (though that’s up from zero two years ago). Internationally, the situation isn’t much better. Italian operator Eni has an ambitious target to reduce upstream fugitive emissions by 80 percent by 2025, but until recently few other global operators have followed their lead.

But change is underway, and methane target setting may become the new normal. Earlier this week, BP announced a quantitative methane reduction target aiming to reduce methane emissions to 0.2 percent of its operated global production. While BP’s initial target unfortunately leaves out emissions from stranded gas assets, the target’s immediacy and stringency is a good example for others to follow. In a recent interview with EDF, BP recognized the operational and management benefits of having a goal, saying “We wanted to set a clear benchmark to focus BP’s efforts and help us build a shared understanding of why it is important to minimize methane and how to do it, from management to operations to the research and development of new solutions.”

BP’s target is timely, as CDP, an organization focused on sustainable investments, just announced a new scoring system for the oil and gas industry. Moving forward, companies that do not set and disclosure methane targets will be penalized, demonstrating that target setting is now the standard expectation among investors.

What investors should look for in a methane target

Investors should keep in mind a few key points as they work with companies to set targets and assess existing ones:

  • Targets must include all sources of emissions: With IEA estimating that more than half of upstream methane emissions come from oil production, targets encompassing upstream must include all emissions from oil and gas production, including both stranded and marketed associated gas.
  • Absolute targets preferable: Since intensity based targets don’t guarantee the environmental or risk reduction outcome of lower emissions, absolute targets are preferable. However, for companies wishing to set intensity based targets, ambition is key to driving down emissions.
  • Ambitious targets technically feasible: IEA analysis and experience of industry leaders suggest that corporate commitments to reduce methane emissions 75% by 2025 are feasible using currently available technology. For intensity targets (generally defined for upstream as methane/gas produced), leading companies have demonstrated getting to 0.20% or below is achievable.
  • Rigorous data and transparency required: A target is only as good as the data that backs it up, which requires robust inclusion of direct measurement to improve data accuracy and capture “fat tail” emissions (e.g. super emitters). Public disclosure of the target and progress towards it are critical to building trust.

The long-term competitiveness of natural gas hangs in the balance with proliferating clean energy options. Setting and meeting robust, ambitious targets are near-term ways industry can show investors and other stakeholders they are up to meeting the challenge.


Originally Published on April 19, 2018

The Energy Exchange Blog is a forum where EDF‘s energy experts discuss how to accelerate the transition to a clean, low-carbon energy economy. Follow them on Twitter here: @EDFEnergyEX