Lenders and investors must evolve GHG emissions reduction policies beyond the energy sector to achieve net zero in their portfolios.
A new report by Planet Tracker and the Changing Markets Foundation uncovered 40 major financial institutions to have “weak or non-existent” policies for reducing methane emissions, with a particular gap regarding livestock – the single largest source of agri-methane.
“[Financial institutions] haven’t really begun to think about agri-methane – it’s disappointing,” Peter Elwin, Director of Fixed Income and Head of Food and Land Use Programme at Planet Tracker, a UK-based think tank, told ESG Investor.
The energy system’s big methane footprint means the greenhouse gas (GHG) is “trickling” onto the agenda of financial institutions, but they are not looking beyond the sector, he said.
“None of the 40 institutions Planet Tracker looked at has a policy on limiting agri-methane,” he said, noting that agriculture is responsible for more methane than the energy sector.
In the UK, it is currently estimated that 10% of the country’s total GHG emissions come from agriculture, equivalent to 46.3 Mt CO2e per year, according to data from the Agriculture and Horticulture Development Board (AHDB), a levy board which represents farmers, growers and others in the supply chain.
The main GHG emitted from agriculture is methane from ruminants (56%) such as cattle and sheep, with it estimated that the sector is responsible for 47% of the UK’s methane emissions, the AHDB reported.
“Methane is a powerful climate pollutant, 80 times worse than CO2 over a 20-year period,” said Elwin.
“This report highlights the significant role that financial institutions have to play in limiting agricultural methane emissions.”
Rising up the agenda
Elwin hopes that financial institutions act promptly, given that methane continues to rise up the agenda due to global initiatives such as the Global Methane Pledge (GMP).
The GMP was launched in November 2021 at COP26 to catalyse action to reduce methane emissions, with agriculture introduced within that framework. Since then, the GMP has generated significant momentum for methane action, with 150 countries endorsing the initiative and over 50 of them developing national plans to direct capital to reduce emissions in key sectors.
This culminated in a GMP Energy Pathway being launched at the June 2022 Major Economies Forum on Energy and Climate and a GMP Food and Agriculture Pathway and GMP Waste Pathway, both launched at COP27.
“At a country level, governments are beginning to think about [methane]. That suggests central banks will begin to think about it and that will flow into the wider financial system,” said Elwin.
Financial institutions must evolve their methane policy and their portfolio construction to ensure agri-methane is on their agenda, he said, noting the need for stronger engagement with investee companies, particularly those operating in the food system, for relevant data.
“We need much better disclosure by companies on their methane footprints,” he said. “The vast majority of companies are not publishing anything.”
Elwin called for clearer standards for measuring and reporting methane, but pointed to French food producer Danone and plant-based goods company Upfield as examples of companies already publishing meaningful data on Scope 1, 2 and 3 methane emissions, as well as setting targets for reducing their footprint.
“It’s perfectly possible, they’re already doing it,” said Elwin, adding that it is vital that companies start reporting methane emissions data to accelerate conversations on how to make it comparable and valuable to investors.
Shareholders conversations on methane have historically focused on the energy sector (oil and gas companies), with investors engaging far less with agriculture and the food system more broadly, he said.
Elwin hoped that shareholders will demand companies disclose methane emissions data and use case studies like Danone and Upfield to argue for change.
“Cutting methane emissions gives financial institutions the greatest bang for their buck enabling them to rapidly reduce the GHG footprints they fund,” added Elwin. “More importantly, tackling methane emissions now will have an amplified positive impact in slowing global heating before 2050.”
Nusa Urbancic, Campaigns Director at Changing Markets Foundation, said: “[The finance sector] must join the methane momentum sparked by the Global Methane Pledge and demand urgent corporate action to cut methane, starting at this year’s upcoming AGM season.”