Introduction

Between 2017 and 2019, the PRI coordinated a collaborative engagement on methane with the oil and gas and utilities sectors. Thirty-six global institutional investors, representing approximately US$4.2trn, engaged with 31 companies across the oil and gas and utilities value chain. The objective was to persuade companies to measure, manage and reduce their methane emissions. In addition, investors sought to improve company disclosure and their own understanding of methane risks.

This document presents the results of this engagement, summarising data on corporate improvements against the engagement’s scorecard over the course of the initiative. It is the third in a series covering methane, following the 2016 PRI and Environmental Defense Fund (EDF) report An investor’s guide to methane: engaging with oil and gas companies to manage a rising risk and 2018’s Setting the bar:Implementing TCFD recommendations for oil and gas methane disclosure, produced with EDF and Ceres.

Why methane matters

Methane, the primary component of natural gas, is a climate pollutant 84 times more powerful than carbon dioxide over a 20-year period, and which is responsible for 25% of the global warming we are experiencing today. Although natural gas is a lower-carbon fuel than coal when burnt, the high potency of methane as a greenhouse gas and high rates of leakage in the oil and gas supply chain mean that the climate benefits of gas over coal can be completely negated if fugitive emissions are not properly managed. Emissions from the oil and natural gas industry represent the largest industrial source of methane emissions globally. In the US alone, recent research conducted by EDF and published in Science has shown that methane emissions from the sector are 60% higher than government estimates.[1] Falls in the oil price and labour challenges associated with Covid-19 have put further pressure on maintenance programmes for oil and gas facilities, leading to increases in levels of methane leaks.[2] Globally, the regulation of methane emissions from the oil and gas sector is inadequate. During the period of the PRI engagement, the US Environmental Protection Agency began proceedings to roll back regulation requiring the oil and gas sector to monitor and prevent methane leakages.[3] Many companies have opposed the amendment to the regulation,[4] yet key trade associations such as the American Petroleum Institute, of which much of the sector remains a member, have been vocal in their support for the weakening of regulations.[5]

Results of the engagement

Awareness of methane risks amongst engaged companies has risen since the start of the engagement. Four-fifths (81%) of companies have improved their overall disclosure since 2017, although it should be noted the score covers whether or not the company reports on the specific indicator, but does not assess its performance. The most improved company increased its score by 62 percentage points .[6] Three of the 31 companies saw their disclosure score fall, while another three scored the same in both assessments.

Companies are now showing that they are taking action on methane but are not at an advanced level of fully addressing the issue. The performance assessment,[7] which judges how well a company is measuring, reporting and reducing methane, showed that companies are now more likely to be taking some action on methane, with only two companies showing no evidence of action in any one of those categories. This compares with five companies in 2017. That said, the majority of companies are still deemed to be beginners in terms of measuring and reducing methane. The exception is in the reporting category, where 10 companies are reporting at an intermediate level.

The measurement of methane emissions continues to pose a major challenge. Concerningly, many companies appear to be estimating rather than directly measuring methane emissions. The disclosure score for direct measurement decreased by an average of 11 percentage points . This may be partly due to the removal of the associated question in the 2018 CDP climate change questionnaire on how companies calculate methane emissions (see recommendations below for further commentary on direct measurement).[8]

Despite more companies disclosing a methane emissions rate, it is difficult to assess company trends in intensity, with limited consistent data and variability in the scope and methodologies used for the calculations. The percentage of companies disclosing the rate at which they emit methane increased to 71% from 39%. At least one company reported changing the methodology it uses to calculate the intensity rate after joining the Oil & Gas Climate Initiative (OGCI). The scope of the data disclosed varies, with some companies including flaring and venting, and others only including specific operations.

Companies are now setting methane emission reduction targets or disclosing quantitative data on the inclusion of methane in overall emissions reduction targets. The number of companies doing so increased to 16 (52%) companies, compared with 6% of companies in 2017. However, companies are setting a variety of targets, possibly influenced by their memberships of the OGCI[9] and ONE Future.[10] However, many companies are not disclosing the progress they are making towards their targets.

More companies are conducting leak detection and repair (LDAR). Twenty-six (84%) of the companies disclose their methodologies or plans for leak detection and repair, compared with 23 (74%) in 2017. However, only half of the companies reported the frequency that LDAR was conducted (although this is an increase from the two companies which disclosed in 2017) and even fewer disclosed the percentage of assets that are covered by LDAR programmes.

Overall, while some progress has been made following engagement, the extent to which companies are reducing methane emissions in the oil and gas value chain remains limited relative to the scale of the climate change challenge and level of emissions across the sector.

Corporate efforts to properly track and manage leaks remain weak, exposing investors to significant risk both at the company level and across their portfolios more broadly due to the associated impact on the global climate system.

This poor performance at the company level is confirmed by high-level data collected by EDF and others showing continued high levels of methane emissions in key oil and gas production areas.[11]

Recommendations for future engagement

Engagement on methane has elicited some progress but there remains room for further improvement to adequately address the industry’s shortcomings on this crucial issue. Methane should therefore remain a key focus for investors as they work to address climate change and contribute to a shift to net-zero emissions by 2050. The PRI recommends that investors:

1. Seek consistent definitions and methodologies for direct measurement from companies, industry groups and regulators. Despite the increase in target setting and disclosure by many companies, it is difficult to draw accurate conclusions and comparisons of performance if the data is estimated (see recommendation two on direct measurement), or if different metrics are used or scopes applied.

2. Seek verification of reported methane data and targets from companies. Company emissions performance data cannot be verified if data is estimated using current bottom-up emissions factors approaches. Robust disclosure of transparent and replicable methods for site-level direct measurement is required by investors to verify if companies are making progress against their targets.[12]

3. Continue to seek alignment of corporate lobbying and political influence with investor interests. Industry associations have lobbied against the strengthening of regulations covering methane.[13] Investors should continue to engage companies with the aim of aligning their lobbying – both direct and via trade associations – with the interests of responsible investors, and they should encourage companies to take a proactive and positive stance in their support of policy in line with the Paris Agreement.[1]

4. Integrate methane into existing climate-related engagements, particularly Climate Action 100+. Methane is an important issue on which to engage, and investors can and are using the available guides and resources to engage on the topic. The PRI for its part is continuing to work with Climate Action 100+ investor signatories and partner organisations to ensure that methane is integrated into the initiative’s core asks on:

  • Governance – including corporate strategy and positive climate policy advocacy (lobbying);
  • Action – with methane included as part of operational and value-chain emissions reduction targets to achieve net-zero emissions by 2050, consistent with the Paris Agreement. We also expect methane to be integrated into companies’ scenario analysis, especially for those looking to natural gas in their transition planning (as a ‘cleaner’ alternative to coal or oil); and
  • Disclosure – with methane metrics included in TCFD-aligned reporting (see guide under previous PRI resources).

5. Escalate engagement with laggard companies. The slow progress of the industry in addressing methane risks warrants further assertiveness by investors seeking genuine outcomes on climate change. While each investor will need to make its own assessment, the use of targeted shareholder resolutions and/or voting against board members or the company report and accounts is likely appropriate for companies failing to meet investor expectations in the areas above.

6. Engage policy makers in support of stronger regulation of methane. Investors should incorporate methane into their policy engagement on climate change, ideally as part of a well-resourced, high-conviction collaborative initiative. Investors are, of course, active on policy around climate change yet, to date, this has not sufficiently covered methane and associated risks, which presents concerns given the contribution that methane emissions from the oil and gas sector make to global climate risk. Policy engagement would need to be appropriately scoped out, but strengthened disclosure rules, LDAR requirements and robust pricing of methane pollution as part of carbon pricing systems would likely to be beneficial.

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