From footnote to headline: ISSB pushes for methane disclosures

The International Sustainability Standards Board (ISSB) has proposed amendments to its sector-specific disclosure norms – the SASB standards. Since their launch, the SASB standards have been used as inputs for investment decisions across public equity, corporate debt, private equity and infrastructure.

ISSB’s latest reform could extend the remit of SASB for oil and gas companies into a hitherto untapped flow of information – methane emission disclosure. The changes, a significant shift away from methane’s ‘CO2-equivalent’ tag, could invigorate a gradually developing investor consensus surrounding the financial materiality of CO2’s ‘evil cousin’.

Financial materiality

Amongst the proposed changes is the creation of a new, separate scope 1 methane reporting requirement for oil and gas companies.

Even though it is often clubbed into a ‘CO2-equivalent’ tag, methane is anything but equivalent. Its warming effect is about 80 times as powerful as CO2’s and while CO2 lingers on in the atmosphere, methane’s lifespan is in the range of 7 – 12 years.

Andrew Howell, a senior director and head of research at the Environmental Defence Fund (EDF) says the scope 1 change could make financially material information more readily accessible to investors.

“There is increasing evidence that companies who mis-manage methane emissions are destroying shareholder value”, he says. Howell points out that methane leaks are, in addition to their environmental impact, a source of lost revenue.

This, he reckons, is something asset prices react to.

“Just take the recent case of the Australian LNG producer Santos, whose share price fell sharply in September after a persistent methane leak was revealed, which likely played a role in the cancellation of an acquisition bid for the company”, he told Net Zero Investor.

Investor relevant

In that regard, Howell says scope 1 data could translate investor awareness of methane into investment outcomes.

“Disclosing scope 1 methane emissions separately gives investors clearer, more comparable data with which to evaluate climate impact and operational efficiency”, notes Ana Diaz, global energy transition lead at Climate Bonds Initiative (CBI).

“By embedding methane into sector standards like SASB, its financial materiality becomes clearer, which can accelerate regulatory and market pressure for rigorous methane management”, Diaz adds.

EDF’s Howell says this opens the door to pricing in abatement or the lack thereof in valuations.

“This could allow analysis to factor in a ‘methane penalty’ when valuing oil and gas firms, although this will vary depending on a company’s operations, geography and particular circumstances”, he says.

That methane disclosure is investment relevant, reflects in investor responses to ISSB’s proposals. Norges Bank Investment Management, which manages $1.9tn on behalf of Norway’s Government Pension Fund Global has welcomed the push for scope 1 methane disclosure.

“We welcome the ISSB's efforts to enhance the SASB Standards and support the proposed amendments”, said NBIM’s chief governance and compliance officer Carine Smith Ihenacho in a statement.

In their response to ISSB’s consultation, NBIM particularly welcomed the prospect scope 1 methane disclosures.

“The separate disclosure of scope 1 methane emissions is highly material, providing information on direct regulatory exposure, carbon pricing impacts, and operational efficiency”, the fund said in its submission to the ISSB.

Beyond valuations, new scope 1 data could feed into investment instruments that finance methane abatement.

Both EDF and CBI are part of the Methane Finance Working Group. Earlier this year, the group recommended the incorporation of methane abatement into oil and gas debt structuring. This, the group expects, will help channel capital into abatement projects.

To the group, which includes investors such as CalSTRS, PIMCO and PGIM, the ISSB’s latest move is welcome news. It does something the group has been aiming for since its launch at COP28 – moving methane from footnotes to headlines.