Citing climate and portfolio risks, investors call on oil and gas producers to oppose federal methane regulation rollbacks
Statement endorsed by investors representing $5.51 trillion warns against proposed rollback of the EPA’s New Source Performance Standards (NSPS) citing the potential for increased climate and economic threats.
NEW YORK, NY – Thursday, August 29th, 2019 – A group of 140 global Investors representing over $US 5.5 trillion in assets under management/advisement released a statement it is sending to 35 oil and gas producers and mid-stream companies calling on them to oppose the EPA’s proposed rollbacks of the NSPS and publicly support continued federal regulation of methane emissions.
ICCR on Methane Regulation
The statement was organized by the Interfaith Center on Corporate Responsibility (ICCR), which views the unprecedented support for the statement from both European and U.S. funds as testament to the risks investors believe a regulatory rollback would represent to their portfolios. Last fall, investors sent a letter to their portfolio companies asking them to oppose the administration’s efforts to severely weaken methane rules. Additional investment firms representing more than $3.6 trillion in assets under management/advisement have joined the effort to oppose this second, more extreme round of oil and gas methane rollbacks. New signatories include Legal & General, Allianz Global Investors and Manulife Investment Management.
The EPA will open a comment period starting this month around the proposed rollbacks of the NSPS standards the investors say are critical to the long-term viability of the oil and gas sector and the energy transition already underway. The investors say public endorsements from industry leaders are needed to send a strong signal to the EPA that its proposal to roll back these methane regulations is seen by business as ultimately harmful, not only to the environment, but to the long-term sustainability and competitiveness of the natural gas industry.
The proposed rollbacks are supported by the American Petroleum Institute (API), the major trade association for the oil and gas sector. The API issued comments encouraging the EPA to weaken current requirements, and suggested that the agency does not need to regulate methane emissions directly.
While several larger producers including Shell, BP, Exxon and Equinor have shown leadership both by making public statements endorsing federal methane regulations and by reducing their own emissions, industry performance is not uniform. The result is a fragmented market with mixed performance on emissions reductions, where more than 60% of industry currently has no quantitative methane target.
“Many companies have remained silent on the regulatory rollback, and in doing so tacitly support the American Petroleum Institute’s (API) position, which is at odds with science and deepens the risks to the industry’s license to operate,” said ICCR’s Christina Herman. “We are indeed gratified to see responsible oil and gas companies recognize the importance of addressing this significant problem, but clearly more industry voices are needed to help make the business case.”
Natural gas and Methane regulation
While natural gas is often touted as a ‘transitional’ fuel, methane is a powerful climate forcer up to 86 times more potent than carbon dioxide in the short term. In the face of ever more dire reports on the economic and public health tolls of global warming, investors view strong federal methane regulations as critical bulwarks to help stave off catastrophic climate change.
“Curbing methane emissions is crucial to ensure the viability of natural gas as a low-carbon transition fuel. It is a key component for Oil & Gas (O&G) companies to get a handle on, if they want to position their business to benefit under a well-below 2°C trajectory,” said Yasmine Svan of Legal & General Investment Management. “This is consistent with our Climate Impact Pledge, under which LGIM engages with the sectors that are pivotal in the low-carbon transition to help protect our clients’ assets. The O&G industry is aware of the need to curb methane emissions, as evidenced by the support of some operators for federal regulations.”
Apart from the environmental threat methane represents, the investor statement argues that federal standards make good business sense: As U.S. production reaches record highs and the U.S. oil and gas industry experiences strong export growth, methane standards support global competitiveness in a world with shrinking carbon budgets and growing international climate policy action. Furthermore, methane mitigation technologies have proven themselves cost-effective when implemented, driving additional revenue through the capture of lost product.
Investors expressed concern that the potential rollback of the existing federal standards will lead to long term policy uncertainty for the industry and leave large parts of the country without effective regulation of methane emissions.
"We applaud those companies that have made commitments to rigorous methane management, both individually and through coalitions such as the Oil and Gas Climate Initiative and ONE Future,” said Steven Heim, a Managing Director of Boston Common Asset Management. “But with thousands of oil and gas producers and pipeline companies in the U.S., federal methane regulations are essential to reduce emissions industry wide. If the industry does not publicly oppose the rollback, it may be interpreted by investors and others as acquiescence to this rule that undermines the industry’s long-term viability, undoing the goodwill industry leaders have built up through positive actions.”
The statement requests that oil and gas companies submit comments to the EPA affirming:
- Support of the direct regulation of methane and its significance for the oil and gas industry;
- The importance of upholding the scientific consensus and maintaining the EPA’s finding that methane from oil and gas sector sources contributes to GHG pollution and climate change, and;
- The need for trade associations and industry groups to support direct regulation of methane and affirm the scientific consensus on methane emissions from the oil and gas industry.
"This statement has our support as investors in the oil & gas industry, because methane regulation is essential to address industry-level risk," said Carola van Lamoen, Head of Active Ownership, Robeco. "Methane emissions are viewed as a serious climate and portfolio risk. Furthermore, since methane mitigation technologies have proven themselves cost-effective, driving additional revenue through the capture of lost product, it would be unwise for the industry to ignore these revenues."
About the Interfaith Center on Corporate Responsibility (ICCR)
Celebrating its 49th year, ICCR is the pioneer coalition of shareholder advocates who view the management of their investments as a catalyst for social change. Its 300 member organizations comprise faith communities, socially responsible asset managers, unions, pensions, NGOs and other socially responsible investors with combined assets of over $400 billion. ICCR members engage hundreds of corporations annually in an effort to foster greater corporate accountability. www.iccr.org