Methane Could Hold the Key to Net Zero

Teju Akande, Climate Change Manager at Border to Coast Pensions Partnership, explains why and how institutional investors can make the gas a critical focus area.

The main driver of climate change is in little doubt, with carbon dioxide, rightly, the target for much of the action taken to reduce emissions and tackle the problem. But what of methane? Responsible for nearly 30% of the current rise in global temperatures, it is a greenhouse gas (GHG) whose impact is largely overlooked, but which is quickly rising up the agenda.

With over 80 times the potency of carbon dioxide over 20 years, methane is a major source of global warming. Even small reductions in methane emissions can have a significant impact on slowing the pace of rising temperatures. Additionally, methane has a relatively short atmospheric lifetime of about 12 years. Reducing methane emissions has emerged as the quickest, simplest and most affordable way to reduce emissions in the atmosphere, providing faster climate benefits.

Sources and solutions

High-emitting sectors of methane include agriculture, oil and gas, landfills, and coal mining. Agriculture is the largest source, primarily from the digestive processes of ruminant animals and manure management. The oil and gas industry emits methane during extraction, processing, and transportation, while landfills generate methane from decomposing organic waste. Methane is also released during coal mining from both the coal seams and surrounding rock strata.

Adapted from the IEA Global Methane Tracker 2024

The International Energy Agency (IEA) states that cutting methane emissions from the fossil fuels sector is one of the best – and most affordable – opportunities to limit global warming in the near term and achieve global climate goals. It highlights that significant reductions can be achieved with existing technologies where methane leaks can be detected and repaired relatively easily and inexpensively.

At COP 28 in 2023, the Oil and Gas Decarbonisation Charter was launched to accelerate climate action. Fifty oil and gas companies representing about 40% of global production pledged to reduce methane emissions to near zero by 2030 with national oil companies (NOCs) representing over 60% of signatories – the largest-ever number of NOCs to commit to a decarbonisation initiative.

What can investors do?

Asset managers can play a role in driving methane reduction by engaging with companies on the issue. The relevant sectors cut across the whole spectrum of the energy value chain – upstream (fossil fuel producers), midstream (utilities, refineries) and downstream (pipelines). Investors can encourage companies to adopt best practices for methane management through shareholder resolutions and request transparency and reporting on methane emissions through their membership with initiatives such as the Oil and Gas Methane Partnership (OGMP) 2.0, a platform for asset-level methane disclosure and best-practice sharing among fossil fuel producers, with a clear goal to progress to direct measurement-based reporting.

At Border to Coast, our priority areas for engagement include:

Direct engagement with oil and gas majors to reduce GHG emissions and make clear progress on achieving net zero by 2050;
Collaborative engagement with banks to incorporate just transition principles into net zero plans; and
A strengthened exclusion policy on coal and oil sands, not investing in companies where thermal coal power generation accounts for more than 50% of revenue in developed markets, and where thermal coal and oil sand production represents more than 25% of revenues.

Reducing methane emissions is urgent and essential for achieving global net zero targets. Its high global warming potential, short atmospheric lifetime, and the significant emissions from key sectors like agriculture and energy make it a critical focus area. The IEA underscores its importance, and the finance sector has powerful tools to drive corporate action on methane reduction, making it a pivotal part of the global strategy to combat climate change.

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