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Why Investors Should Pay Attention to Methane Risks

wright-seanNo one likes uncertainty, least of all investors. Good, actionable information is their most important tool for risk management and key to successful investing – because without proper data, investors are flying blind.

And yet, none of the 65 oil and gas companies reviewed in a just-released study by Environmental Defense Fund disclose targets to reduce methane emissions, the main ingredient in natural gas.

What’s more, less than one-third of these companies voluntarily disclose emissions, and what disclosures exist are vague and overly qualitative – making it difficult for investors in these companies to hedge risk.

As the ongoing and massive leak at Aliso Canyon has so clearly demonstrated, methane emissions from the oil and gas sector do, in fact, pose a multitude of expanding risks, with both short and long-term consequences.

What Investors Deserve to Know

Aside from potential liabilities from accidents such as the one in California, investors need to know how much money companies are losing when their facilities leak natural gas.

They should also know if the companies they invest in have a plan to reduce emissions to limit impacts from such leaks, and how prepared they are to comply with forthcoming regulations.

It’s difficult to find out any of this, and that’s a problem.

At 84 times more powerful than carbon dioxide in the short-term, methane emissions represent a potent and fast-emerging form of carbon risk.

Preparedness to comply with forthcoming rules to address methane pollution is inconsistent across the industry, however. What’s more, methane emissions undercut the natural gas industry’s ability to play a role in a carbon-constrained world.

$30 Billion in Lost Product Annually

Last but not least, leaking natural gas systems amount to an estimated $30 billion in lost product annually worldwide, losses detrimental to sound investments.

Without reduction targets, how can investors know that management attention is focused, and that the emissions, and thus risk, will be reduced? And if less than one-third third of companies voluntarily disclosure emissions, how can investors hedge methane risk by investing in companies with comparatively lower emissions?

As a former equity analyst on Wall Street, I can’t help but worry for these investors. I used to spend my days pouring over data, trying to spot opportunities and risks.

The numbers were trustworthy and actionable because figures in financial filings must be audited and reported according to strict accounting rules.

Not so in the methane world.

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