Metrics and targets

This information can help investors understand relative company performance on methane risk management as well as provide further insight regarding how a company approaches the issue from a governance, strategy and risk management perspective.

The quantitative metrics in this section aren’t meant to be analyzed on their own, but in conjunction with the more qualitative and narrative-based disclosures from the prior three sections. The metrics are designed to help investors understand and track how companies are implementing policies and processes around governance, strategy and risk management. For example, a company may discuss how methane mitigation technology research and development (R&D) and adoption fits into their emissions management strategy (see Strategy section, part b) while also disclosing the amount of capital invested into such new technologies. See Table 2 for a breakdown of how the following metrics link with the disclosures recommended in the previous three sections of the TCFD framework.

Table 2

a) Disclose the metrics used by the organization to assess climate-related risks and opportunities in line with its strategy and risk management process.

The following suggested metrics are intended to support and provide greater context for the previous mentioned disclosures around governance, strategy and risk management. Investors will want to understand:

• Internal carbon/methane price – Companies should disclose if they utilize an internal price on carbon as they consider new projects and if/how it applies to methane emissions. If a company’s internal carbon price does apply to methane, companies should disclose which Global Warming Potential (GWP) timeframe they use to translate a carbon price to a methane price, a 100- or 20-year time frame. If a company has an internal price on carbon but does not apply it to methane it should explain why.
• Monetary value of methane emissions – Methane emissions represent lost product, which are a sign of operational inefficiency and lost revenues. Helping investors to understand the financial impacts of lost methane enables them to better understand the potential opportunities for bringing more product to the bottom line.
• Breakdown of Scope 1 emissions by source – Because there are different solutions for methane emissions according to source, it is also helpful to know the relative breakdown of sources to understand the implications for expenditures related to minimizing emissions. Sources can be broken down by business segment (e.g., exploration and production vs. storage and processing), by emissions category (e.g., venting vs. fugitive emissions), by specific source (e.g. pneumatics, tanks) and by geographies (e.g., basins, countries).
• Expenditures on methane emissions mitigation – To help investors understand how companies mitigate methane risk and its impact on expenditures, companies may disclose their spending on methane mitigation equipment and operational practices. To help investors understand how companies are managing future emissions, companies can provide a breakdown of resources spent on retrofitting existing assets vs. minimizing/preventing emissions on new assets.
• Investment in methane mitigation research and development – There is an increasing focus on using emerging technological innovations to reduce methane emissions, especially through finding and fixing sources quicker and more cost-effectively. Companies may spend R&D, or be a leading technology tester/adopter, as a means of both risk mitigation and competitive opportunity. Companies can also disclose their investments in methane reducing technology (e.g., equity investments, pilot participation). As consumer preferences move towards cleaner forms of energy, minimizing methane emissions through R&D and new technology adoption can help markets understand how the company is positioning itself to be competitive in the future.
• Returns from methane reducing investments – Companies should also report metrics around climaterelated opportunities, not just the risks. Companies can provide metrics regarding the internal rate of return and payback periods from methane reducing investments such as equipment retrofits or deployment of new technologies.
• Percentage of emissions inventory informed by direct measurement – The TCFD recommends that companies “provide a description of the methodologies used to calculate or estimate climaterelated metrics.” Given that directly measuring emissions is more accurate than using emission factors and engineering equations, investors will want to understand what percentage of a company’s emissions inventory is informed by direct measurement (See A Note on Data Accuracy, p. 19). Companies that do not utilize direct measurement will risk underestimating their emissions and will also lack the detailed information needed to develop and execute an optimized risk management plan. Companies may also disclose what other methods are used to inform the remaining percentages of their emissions inventory (e.g., engineering calculations vs. source/company specific emissions factors).
• Frequency of LDAR program - LDAR is one of the most effective solutions for reducing methane emissions and key for identifying and fixing “super-emitters.” Understanding how a company conducts its LDAR programs is a good proxy for a company’s broader risk management strategy. The more often a company looks for methane leaks, the more quickly they will be found and repaired, the more effectively emissions will be reduced. A company should report how often its assets are surveyed via LDAR per year, including use of any new technologies like continuous monitors. If a company uses different frequencies on different assets, it may consider reporting metrics like leak recurrence rates to contextualize that strategy.
• Scope of LDAR program – A comprehensive LDAR program will inspect all assets under a company’s operational control to ensure all potential sources of emissions are checked for leaks. A company should report the percentage of assets monitored via its LDAR program.

b) Disclose Scope 1, Scope 2 and, if appropriate, Scope 3 greenhouse gas (GHG) emissions and the related risks

• Scope 1 emissions- Companies should disclose their Scope 1 methane emissions from their direct operations in an absolute, stand-alone figure.
  • Methane, due to its near-term warming impact, its economic value and its method of being regulated requires separate reporting from carbon dioxide and other greenhouse gases. Methane risk cannot be fully understood if the emissions are only disclosed in a consolidated CO2 equivalent (CO2e) figure.
  • Emissions should be reported from all sources, including both oil and gas assets. According to the IEA, more than half of upstream methane emissions come from oil production.
  • Ignoring emissions related to oil production (which may include “stranded” gas assets) would provide an inaccurate and incomplete picture of a company’s methane footprint. It would also be inconsistent with the TCFD’s Fundamental Principles for Effective Disclosure, which highlights in Principle #2 the recommendation that disclosures be “specific and complete.”
• Scope 2 emissions – Companies may consider reporting Scope 2 methane emissions. However, for upstream, it’s unlikely they would have significant methane emissions from Scope 2 for energy procurement.
• Scope 3 emissions – With consideration to existing technology and data availability, companies should estimate Scope 3 emissions in their respective value chains. 
  • Per TCFD guidance, “(Relatively) high carbon emissions in the value chain may accelerate development of alternative technologies in a lowcarbon economy. The level of emissions informs vulnerability to a significant decrease in future earning capacity.”
  • Initiatives exist today for utilities and downstream companies to work with upstream suppliers to get accurate methane data in order to report a Scope 3 methane figure. Upstream companies are likely to face increasing commercial pressure from consumers to provide transparency on the emissions related to their product.
• Methane intensity figure – The TCFD recommends companies disclose industry-specific GHG emissions ratios when applicable. The predominant emissions ratio used by upstream industry companies for methane is total methane emissions from oil and gas operations divided by total natural gas production. If a company finds other ratios more appropriate, it is important that the company is transparent and consistent in whatever methodology it uses to arrive at its methane intensity figure.

The metrics and their associated TCFD categories, financial categories and climate-related categories are outlined Table 2 below, which is adapted from the TCFD framework.

c) Describe the targets used by the organization to manage climate-related risks and opportunities and performance against targets

Emissions Reduction Target - In April 2018, EDF released Taking Aim: Hitting the mark on oil and gas methane targets to help inform companies and investors around setting and assessing methane targets. While work remains to be done to develop a framework for a science-based methane target, companies can still set ambitious targets based on technical data that support their strategy and risk management priorities.

Methane targets should address:

• Scope: Full coverage of upstream production – including emissions from both oil and gas production – is essential for completeness. Moreover, because joint ventures are so prevalent in the global oil and gas industry, companies should consider how to extend emission reduction efforts beyond operated assets.
• Form: Companies should be clear on the form and methodology of their targets. Absolute, methane-specific targets provide more certainty on environmental outcomes by defining the future level of allowable emissions. If a company uses a methane intensity target, the company should provide robust transparency into the calculations used for that intensity figure, so investors can quant ify the emissions ramifications.
• Stringency: When considering absolute reduction targets, ambition is key to achieving meaningful results. IEA analysis and corporate experience suggests that reducing emissions by 75% is feasible, providing a reference point for companies to develop targets. Regarding intensity targets, high ambition can provide some assurance that the target will deliver lower emissions, even if pr oduction or throughput increases. A strong aspiration for an upstream methane intensity target is no more than 0.20% oil and gas methane emissions over total natural gas production.
• Timeline: Setting a time-bound target is important for several reasons. A deadline enables internal and external stakeholders to assess progress. Additionally, a deadline signals management commitment and creates a public-facing framework for planning and implementation.
• Data and Transparency: Over time, credible corporate target setting requires accurate, audited data from companies asserting progress in reducing emissions. Public disclosure of emissions data and the methods used to both measure and estimate emissions is needed to ensure confidence in the accuracy of reported performance.
• Operational and Technology Targets - In addition to emissions targets, companies may consider setting operations-focused targets that serve to support the goal of reducing emissions. A few examples of operational targets include:
• Frequency / Scope of LDAR – A company may consider setting a target to increase the frequency or scope of their LDAR program. For example, if a company conducts LDAR once per year, an interim target may be to increase it to twice a year on the way to quarterly LDAR. A company may also consider increasing the number of assets inspected.
• Retrofitting existing equipment – The existing stock of equipment in the field is responsible for the majority of methane emissions and replacing and/ or retrofitting that equipment is necessary to reduce emissions. A company may set a target to replace certain types of old, higher-emitting technology within a certain time frame.
• Increasing use of direct measurement – To improve the accuracy of its emissions inventory, a company may set a target around increasing the percentage of emissions covered by direct measurement.
• New technology adoption – With a robust market for methane mitigation technology, one strategy for effective risk reduction will be to adopt and deploy new equipment that can speed reductions at less cost. Companies may consider setting targets on the number of sites that will serve to test new equipment, or the amount of R&D fund ing set aside for investing in new technologies.