As we committed earlier, we are filtering the information overload coming out of – and related to – the COP26 summit in Glasgow. Here are the first few items you should know about:
US EPA proposes methane emissions rule. Whether timed specifically for COP26 or not, EPA published a proposed rule on New Source Performance Standards (NSPS) for methane emissions from the oil and gas industry. This proposal will be followed by a supplemental proposal in 2022 reflecting public comments submitted on – or matters not addressed in – the initial proposal. This proposed rule would impose chemical industry Leak Detection and Repair (LDAR)-style requirements on wells emitting 3 tons/year or more of methane. Pumps and tanks would also be covered.
Our view: As a formal EPA rulemaking, this becomes mandatory for US companies once it is finalized and effective. The proposal will almost certainly generate opposition. That EPA already announced a supplemental proposal demonstrates their awareness of the issue’s complexity, and indicates a final rule is unlikely to be published in 2022. Even so, methane is a potent greenhouse gas – small reductions have big impacts, plus emissions controls are proven/available and more cost effective than for CO2. Companies potentially subject to these emissions controls should be prepared for the public’s use of remote sensing and detection technology from drones to satellite imagery to monitor company claims of exclusions and actions taken.
UN to scrutinize Net Zero claims. According to Responsible Investor, UN Secretary General Antonio Guterres “accused the current [Net Zero] commitments of suffering from ‘a deficit of credibility and a surplus of confusion’… He claimed that ‘recent climate action announcements might give the impression that we are on track to turn things around. This is an illusion… Even if the recent pledges were clear and credible – and there are serious questions about some of them – we are still careening towards climate catastrophe’”.
Our view: It is good to see an initiative for validating the credibility of Net Zero claims, commitments and actions. Yet the machinations of how UN plans to essentially regulate Net Zero commitments will be critical to understand and may become an obstacle given questions about UN authority for administrative law in sovereign nations. As this was announced in a speech given by Guterres just yesterday, no details are yet available.
The CFA Institute published its own ESG disclosure standards for investment products. This follows a public exposure and comment period that started in August 2020. The standard does not address naming conventions for ESG investments. A companion handbook and assurance procedures are expected to be issued by May 1, 2022.
Our view: As if there weren’t enough ESG standards already out there… Others agree that the need for CFA’s standards is questionable and may actually be harmful. I lived through proliferation of standards in environmental management systems and auditing as well as in conflict minerals due diligence. The excessive number of standards stemmed from a belief that every individual party/organization had their own unique situation necessitating their own standard (yet all based on the same foundation). This created a tremendous amount of inefficiencies, wasted effort and confusion. We will have to wait and see how the SEC weighs the myriad standards as they consider rulemaking.
Finally, congratulations to the World Series 2021 Champions Atlanta Braves!