Forbes Councils
Chris Romer
Would you accept a loan with an estimated interest rate from your bank? What if your employer estimated your paycheck each month? Now let’s raise the stakes and talk about greenhouse gas emissions. The future of our planet is at stake. Your home and your way of life are at stake. Future generations are at stake. Did you know that most companies are estimating their emissions and that the error rate could be as high as 40%? Knowing what we stand to lose, are you willing to accept estimates on emissions?
Methane is 80 times more potent than carbon dioxide and has a much higher global warming potential. We know that methane is a byproduct of several key industries in the United States and abroad, including energy, agriculture and waste management. These industries aren’t going anywhere anytime soon because we rely on them for nearly everything in our lives.
But it’s not all doom and gloom. If we know where greenhouse gas emissions are coming from, we can stop them. A full understanding of the environmental impact and actionable plans to course-correct our substantial planetary damage are critical as we work toward net-zero and meeting the challenges of climate change head-on.
Why, then, are most energy value chain companies still relying on estimates of methane emissions rather than calculating the actual values? I believe this is changing. We have the power to put an end to outdated modes of emissions calculations in two key ways: stakeholder pressure and new technology and reporting standards. MORE FOR YOUGoogle Issues Warning For 2 Billion Chrome UsersForget The MacBook Pro, Apple Has Bigger PlansGoogle Discounts Pixel 6, Nest & Pixel Buds In Limited-Time Sale Event
ESG has gone from nice to have to need to have. Environmental impact is top of mind as companies work to navigate a world where ESG data is now included in quarterly earnings reports, complete with accounting standards.
This should be good news for those of us concerned about the corporate impact on the environment. But the problem is that ESG data isn’t always reliable or granular enough to showcase progress. Many industries, including oil and gas, have long resorted to estimates for environmental data, especially when it comes to emissions.
If companies have pledged allegiance to our air, land, water and communities, and report their progress toward those commitments, estimates simply aren’t enough. Guessing emission rates will not get us to net-zero. The tech exists to deliver actual data. The rate of climate change surpassed ESG platitudes years ago. Today, we must require a ledger-quality measurement and real-time quantification. In the case of oil and gas companies, these need to come directly from the pad and pipeline level.
New technology and standards are helping drive this change. We can now accurately measure methane intensity and ensure that fracking fluids are not dropped, produced water is not dumped in the river, fugitive emissions are not written off and ozone levels aren’t being driven higher and higher.
Where can companies looking to make meaningful changes to their environmental footprint start? Scope 1 and scope 2 emissions are directly under your control. An audit of your assets and their environmental footprint must come first, but meaningful action must follow. If we’re going to reach net-zero by 2050, we must start measuring and developing data-backed plans to combat climate change, not just in the energy industry but across the economy.
The promise for a new ESG-driven future doesn’t end at measurement. We’re at the forefront of a data revolution. Imagine the ability to not just track emissions but the ability to code individual molecules as either “green” or “brown.” In the next few years, this could very well become a reality. ESG is going to embrace data down to the molecular level.
New technology holds great promise for companies and investors. There’s another side to this measurement-for-climate-equation, though: public trust. Oil and gas companies can no longer stand on their own declarations. Third-party high-fidelity measurement and certification are a must. Data must be verified and certified to regain the trust of both consumers and investors.
Companies that insist on bad practices will be denied reserve-based loans, blocking access to capital and maybe even bringing operations to a halt. There won’t be a market for uncertified molecules from oil and gas in the next few years. Investors could be liable to the Department of the Treasury if they don’t rate risk at the pad level. A recent article from S&P Global notes: “Art Krasny, the managing director and head of oil and gas finance for Wells Fargo & Co., said lowered emissions improve the marketability of oil and gas assets, but that requires reliable emissions data and industry benchmarks that buyers and sellers can use to assess operations.”
Some companies, like Blackstone, Blackrock, Morgan Stanley and Goldman Sachs, have already reacted to this pressure without greenwashing or folding to the status quo.
We, the public, now have the flexibility to walk away from companies pushing ESG with vanity metrics and promote the ones making the big moves toward a net-zero future. What will you do with that power?