Get signals – before others – that might trigger shifts in market sentiment.
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Methane – the primary component of natural gas – is a potent greenhouse gas. A powerful heat trapper, methane produces 86 times the warming power of carbon dioxide during its first 20 years in the atmosphere. This is why fugitive methane emissions are extremely deleterious to climate stability.
Unfortunately, methane levels have shot up in the past decade. Keeping methane in check is critical to staving off the worst effects of climate change. In the U.S., the onus chiefly falls on the oil and gas industry as the #1 source of methane emissions. Gaining timely insights on these underlying risks open up new opportunities for alpha generation and risk management.
Fugitive methane emissions may be a key indicator of wasteful, inefficient energy businesses with poor governance. Super emitters, in particular, are likely to have above average exposure to legal liability, regulatory/compliance and reputation risk, as well as accidents. Therefore, the highest emitting companies may be candidates for short positions (or underweighting) by traders and investors versus cleaner operating peers and alternatives.
Human or automated traders and managers can use MethaneScan® in several different ways, including:
Alpha generation from long-short equity trading – Enhance proprietary strategies with early indicators of methane emission anomalies which may anticipate price movement, shifts in sentiment, and company systemic problems
Risk management – Reduce or close positions when material negative news impacting a given company or its peers is anticipated
Engagement – Inform efforts by major institutional stakeholders such as pension funds and mutual fund managers to drive changes in sustainability practices at companies via shareholder resolution, proxy votes, disclosures, or other pressures.
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