Investors urge companies to support methane regulations. Are they listening?

Over the past few weeks, companies like BP, Equinor, Exxon and Shell have publicly stated their support for direct federal regulation of methane. It is not every day that a company asks for more rules rather than less. What’s one of the driving forces behind these public position reversals? Investors.

Investors have been an important pressure point in moving these companies to their new policy positions, and they continue to wield their influence to encourage more companies to join.

Investors want methane regulations

This fall, 61 investors representing $1.9 trillion assets under management sent a letter to 30 leading oil and gas companies urging them to publicly declare their support for strong federal methane regulations and to oppose the Environmental Protection Agency’s (EPA) deregulatory proposals.

Why do investors see these rules as in their business interest? Climate-risk and the low-carbon transition are top of mind for investors in the oil and gas industry today. Analysis by Ceres found in the 2018 proxy season, 46 % of asset managers voted for more than half of the climate-related shareholder proposals, up from approximately 33 % in 2017.

So for oil and gas companies and their investors, common-sense policy that can manage potent greenhouse gas emissions today is a key risk-reducing measure for the industry.

As the investors explained in the letter, “rolling back federal regulation will lead to excessive methane emissions that needlessly tarnish the reputation of natural gas as a clean fuel and call into question the role natural gas can play in a low-carbon future. Comprehensive and common-sense national standards are needed to mitigate this industry-wide risk.”

Praise for BP, Equinor, Exxon and Shell, but who is next?

When BP, Equinor, Exxon and Shell announced their public support for continued and expanded direct federal methane regulation, investors were quick to offer praise for this important step.

After these public announcements, As You Sow wrote, “we are pleased that companies like Exxon and Shell acknowledge the need for federal methane regulation. Smart methane controls represent the low-hanging fruit that companies should implement while transitioning their business models toward complete Paris-compliance.”

However, methane is an industry-wide problem. A total of 610 different companies account for 50 % of oil and gas production in the United States. While investors applaud these first steps taken by a few industry leaders, they are looking to other companies with a stake in the U.S. oil and gas industry to follow next. And for the original set of leaders to follow through on their statements in the months to come.

As California State Teachers’ Retirement System (CalSTRS), the second largest U.S. pension fund, stated, “CalSTRS now looks to engage other oil and gas companies to follow the positive examples of BP, Exxon and Shell, by supporting the continued direct regulation of methane by the EPA for new and existing sources.”
With investor statements like these, we can expect more companies – many of whom are already taking steps to monitor and mitigate emissions in their own operations – to begin similar advocacy.

Trade association transparency

Investors are also keen to see companies distance themselves from trade association positions on methane policy, such as the American Petroleum Institute’s (API), that set industry back.

As Adam Matthews, Director of Ethics & Engagement at the Church of England Pensions Board stated, “We applaud the companies who have broken from the API on methane emissions regulation. We would encourage other companies that have so far remained silent to similarly demonstrate their commitment to addressing this important issue.”

In fact, investors see this recent move by oil and gas companies on methane as part of a larger trend. Matthews wrote further, “This is a trend that is rapidly gaining pace as companies across a growing number of sectors are responding to investor requests to review the consistency of their trade association memberships… Investors are working across Europe, Australia and in the U.S. to ensure…that what is said in public is also lobbied for in private.”

To put it shortly, Mindy Lubber, President of Ceres tweeted, “It’s time for trade associations to represent their members.”

Looking forward

Based on the recent methane momentum among investors, oil and gas companies should be prepared for three engagement asks from their investors to continue as the EPA moves forward with its deregulatory proposals. Investors will be asking for:

1. Companies that have remained silent so far to break from trade association positions, and publicly support direct federal methane regulation.
2. Public supporters of methane rules to translate their words into action, and actively work with the administration to maintain methane regulations.
3. Members of methane-lobbying trade associations to influence those organization’s public opinions on methane regulation.

In order to be viewed as a methane leader by investors, companies cannot simply just manage emissions from their own operations. Methane emissions are an industry-wide problem that pose a portfolio-wide risk to investors. Smart regulation can set a floor so investors and companies can be assured that every actor is taking at least some minimum action. Therefore, investors now expect companies that are truly looking to solve the methane problem to advocate for sound policy solutions.