As stakeholders begin to pay more attention to ESG factors when making investment choices, producers are looking for ways to quantify the practices and decisions they make in the field to optimize and improve their ESG performance. Some are seeking third-party certification of their responsibly sourced gas (RSG) to demonstrate their ESG practices to their stakeholders.
“Investors, banks and insurers understand that ESG/climate risk is financial risk,” said Jennifer Stewart, principal advisor to Equitable Origin, an organization that provides independent certification of ESG practices. “Certification serves as external validation for these stakeholders that a company is doing what they say they are doing in their investor materials and sustainability reports.”
Investors across the board are seeking transparency into the products they buy, she explained. “The climate and ESG attributes need to be measured, quantified, verified and reported and then validated by a qualified, independent third party.”
The financial motivation to demonstrate ESG practices through RSG certification puts pressure on producers, with some positing that RSG certification may determine if a producer can sell their gas in the future.
“The theory here is that at some point in time, certified gas may become ‘table stakes,’ meaning that in order to sell gas at market price, a producer will need evidence that it was produced responsibly,” Stewart said. “If the gas is not certified, a producer may not be able to respond to an RFP [request for proposal], or the gas will sell at a discount.”
The strong push toward active and meaningful ESG practices and certified RSG comes from the market, Stewart explained. But the transition hasn’t been without its challenges.
Stewart lists cost, both in terms of cash and human resources, as a significant barrier.
“Certification under any of the current certification bodies is a robust process and requires significant data and document gathering, field visits, interviews, etc., so it creates a drain on already overworked staff,” she said. “The [Equitable Origin] certification process is very inexpensive, but there is some upfront cost to hire an independent assessment body.”
Another significant challenge is that despite being market driven, “the market doesn’t know what it wants yet.”
“Investors, banks and insurers understand that ESG/climate risk is financial risk.”
“It knows it wants clean, responsibly produced hydrocarbons,” Stewart said. “But it is not dictating how that is evidenced, so producers are trying to meet the demand as best they can with certification.”
A lack of standardization with regards to certification processes causes confusion as to which certifiers a producer should employ, she explained.
That confusion also affects the buying and trading of certified RSG. “What does not exist today is an exchange,” Stewart said. “[In other industries] there’s exchanges where you can buy the digital attribute to the electron. There’s no current exchange right now where certified volumes are listed on, so the volumes are listed on a registry right now to keep everyone accountable.”
Smart financial decisions drive efforts to certify producers’ ESG practices and responsible sourcing, but environmental concerns also play a role in the increased volume of third-party certified RSG buying and selling.
In a July op-ed for HartEnergy.com, Chris Romer, co-founder and CEO of Project Canary, a Denver-based ESG data analytics firm that helps companies measure and minimize emissions, pointed out that the technology and means to tackle some of the main causes of global warming are here already.
He specified eliminating fugitive methane emissions as an obtainable and impactful goal. “It’s not as well-known as CO2 and not as virtue-signaling friendly as metal straws, but it is the best step we can take,” he said.
Romer’s words come on the tail of the Supreme Court ruling in June regarding the authority of the U.S. Environmental Protection Agency (EPA) to regulate greenhouse-gas emissions from existing coal- and gas-fired power plants. The ruling restricted the sweeping regulatory powers granted to the EPA under the Clean Air Act anti-pollution law, limiting the EPA’s ability to create new regulations or enforce older ones.
“We have to act now,” Romer said. “The urgency is only increasing. Regulation will not be the salve we were hoping for.”
“We must now look to markets and consumers to solve this problem,” he said.
Stewart argues that the push for certifying RSG and other ESG practices already comes from the market independent of regulations, and the latest Supreme Court ruling will not have much of an effect on the existing ESG and RSG culture.
“Right now, the whole notion of certification is based around producers or operators going beyond regulatory requirements,” Stewart said. “[Producers] only have to inspect existing facilities two times a year in order to meet regulatory requirements. I don’t know this for a fact, but every producer that has gone through certification so far probably conducts field-based inspections on all of their assets, new and existing, and probably does it on a quarterly or monthly basis.”
“There’s no regulatory requirement to do this,” she said. “It’s a way of recognizing that only inspecting your sources two time a year, and not inspecting some of them at all. … It’s not the right thing to do from an environmental stewardship perspective.”
Stewart explained that many producers are stepping up and going above and beyond regulatory requirements, independent of federal oversight.
“I think this is because they recognize that they have to do a lot,” she said. “Those that are seeking certification are already good actors.”
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