ClientEarth: Exxon and Chevron’s chance to get ahead of coming U.S. law changes

Environmental Protection Agency releases methane leakage regulations affecting tracking

Shareholders in Exxon and Chevron have the chance today to vote on resolutions on fracking that could help the companies get ahead of new U.S. methane regulations.

Ahead of the Exxon and Chevron AGMs this week, the U.S. Environmental Protection Agency released methane leakage regulations that will affect new and modified fracking sources.

In March, U.S. President Barack Obama and Canadian Prime Minister Justin Trudeau committed to reduce methane emissions from the two countries’ oil and gas sectors, the largest source of methane in both cases.

The new and proposed requirements appear to echo many of the provisions included in As You Sow’s shareholder resolutions, due for a vote at both companies, which include monitoring and reporting on methane leakage, material hazards, drilling fluid toxicity, community complaints, and other related issues.

The EPA already requires reporting on these issues as it collects information from companies through its Information Collection Request (ICR) released on 12 May this year.

The EPA has targeted methane in the oil and gas sector because of the unusual potency of the gas – at least 25 times that of carbon dioxide – and because the sector accounts for about a third of all methane emissions in the U.S. Existing technology can prevent methane leakage, and methane itself can be sold; the EPA estimates there will be considerable net economic benefits for companies as they comply with the new regulations.

Regulations – why it pays to be ahead of the game

Companies that fail to monitor and report on such issues will be less prepared to comply with the current and forthcoming EPA regulations. Those who delay the implementation of leakage prevention technology also miss out on years of recouping costs through the sale of captured methane. This is in addition to the litigation risks associated with community health complaints and the like, which As You Sow’s resolutions ask companies to document.Many investors quite rightly feel that they cannot assess the extent to which Exxon and Chevron’s respective share prices will be affected by these new regulations. The risks and uncertainties associated with their current business models span regulation, reputational damage and legal repercussions, and lost revenue due to tardy adoption of technological fixes.

Losses could mount in any one of these areas, and their combined effect could become a serious concern for long-term shareholders – pensions, foundations, and other institutional investors.

Such investors will get a chance to push for more information at the Exxon and Chevron Annual General Meetings on 25 May, when they may vote for eight climate change-related resolutions – including a resolution addressing the environmental, legal, and reputational issues associated with fracking.

Regardless of the outcome of the vote itself, Exxon and Chevron will have to compile the data that As You Sow’s fracking resolutions recommend once the EPA’s new regulations come into force. Doing so may well protect the companies from the uncertainty associated with future regulations, litigation, and reputational damage.

In the case of methane leakage, it would merely involve taking steps towards complying with regulations that are almost certain to be enacted in the coming years.

Besides which, unlike in some other regulatory scenarios, addressing methane leakage involves a modest up-front investment that more than pays itself off in the end. Because of the co-benefits, failing to pass these resolutions would represent a missed opportunity.

Whether implemented due to good sense or shareholder pressure, these resolutions’ passage into company policy would allow shareholders to rest assured that they had all of the information necessary to assess Exxon and Chevron’s viability in a world in which governments, citizens, and even these companies’ global peers have begun to take climate change seriously. The companies might even begin to accept that they make good business sense, too.

Alice Garton is Company & Financial Lawyer, ClientEarth and Ellen Quigley is with Positive Investment Cambridge.