Leading ESG Investments and Methane Mitigation at Quantum Capital Group 

In recent years, private equity is becoming an increasingly powerful change agent for driving progress on ESG (Environmental, Social, and Governance), climate progress and sustainability. By integrating ESG into their management, private equity firms can strategically drive their portfolios towards long-term profitability.   
  
At the helm of redefining the ESG investment paradigm is Keila A. Diamond, Managing Director, and Head of ESG, Quantum Capital Group. Founded in 1998 and based out of Houston, Texas, Quantum Capital Group is a leading private equity capital firm that invests in energy transaction and decarbonization companies. Because of these investments, Quantum Capital Group understands the interplay across the energy value chain, which is increasingly critical given the challenge of achieving net-zero emissions while meeting growing energy demands.  
  
Keila joins us ahead of her panel session at the upcoming Methane Mitigation America Summit this December in Houston, Texas, to discuss the growing importance of ESG considerations and good methane data for investors. Her experience in managing the strategic direction of the firm, with regards to ESG, enables her to provide extremely valuable insights into Quantum Capital Group’s commitment to risk-adjusted investment, and their hands-on engagement with portfolio companies.  
  
Maryam Irfan, Industrial Decarbonization Network: Can you tell us a little bit about Quantum Capital Group and your role as Managing Director and Head of ESG? 
  
Keila A. Diamond: I lead our work on ESG for Quantum Capital Group. Historically, our investments have primarily been in the energy industry, focusing on oil and gas. However, over the past 10 years, we have also invested in renewables and, more recently, we've been exploring opportunities in the energy transition, as well as early investments in innovative companies. These innovative companies specialize in software and technology solutions that support the energy transition, emphasizing the intersection of energy sustainability and climate concerns.  

READ: Sustainability: Leverage Digital Technology to Reach Your Goal
 
Our investments span various capital categories, including equity, credit, and venture capital investments on the innovation side. My role within the organization involves looking at ESG from a firm-wide perspective. I play a crucial part in helping the firm set its strategic direction in terms of ESG. We integrate ESG considerations throughout the investment life cycle, starting from prospecting and due diligence on potential companies. This continues as we bring these companies into our portfolio.  
 
The bulk of our work related to ESG involves helping these companies improve their performance. We approach this by focusing on operational excellence, ultimately leading to profitable and successful exits when they go to market.   
 
Maryam Irfan, Industrial Decarbonization Network: What is Quantum Capital Group's approach to ESG investing and how does the firm differentiate itself from other firms?  
 
Keila A. Diamond: Our strategy is integration. We focus on integrating ESG factors throughout the life cycle of our investments, with the main goal of creating opportunities at the end of our investment period. This approach supports our risk-adjusted investment style and that entails working closely with our portfolio companies to maximize the value they bring, not only during our holding period but also when they go to market.  
 
We pursue this objective in two different ways. First, during the screening process, we identify potential risks and opportunities that could impact the value of the company and evaluate how best to address the risks and capitalize on the opportunities. Second, during the holding period, we differentiate ourselves by assisting our companies in staying ahead of the trends. This involves understanding their baseline in terms of emissions and performance, considering various US indicators that we monitor. We then work in close collaboration with Quantum Capital Group to implement solutions, fostering a strong partnership style. Our aim is to help our companies become best in class, and that's the ultimate goal.  

LISTEN: Episode 2: The Government of Alberta's Key Methane Reduction Initiatives
 
Maryam Irfan, Industrial Decarbonization Network: What are the key drivers behind the growing importance of ESG considerations for investors and how do you see this trend evolving in the coming years?  
 
Keila A. Diamond: The main driver really is a robust financial return. The end goal is to ensure success for both our firm and the companies. When we consider ESG, we approach it from the perspective of providing support to our companies, in addition to traditional financial backing so they can thrive. ESG is just one of several factors we consider.  
 
So, Quantum's approach to engaging with our portfolio companies is very hands-on. We support them with various aspects, including advanced technical assistance, ranging from subsurface physical geology understanding, to enhancing their drilling and completions opportunities. We have an advanced in-house team that assists with digital transformation and the utilization of AI and other tools.  
 
ESG is just one part of our toolbox for supporting the success of portfolio companies. Our focus is on ensuring that the ESG opportunities our portfolio companies pursue align well with the market and with the expectations of potential buyers. This seamless integration is essential for a successful and value-adding transition for the buyer.  
 
We have seen examples where this approach has been successful, and we believe our strategy has been effective thus far. We look forward to continuing to work with our portfolio companies in a strong, partnership-based style, so we can continue the exchange of knowledge.   
 
Maryam Irfan, Industrial Decarbonization Network: What do you regard as best practice for methane emissions reporting and mitigation and how do you engage with companies in this regard?  
 
Keila A. Diamond: With our portfolio companies, our first step is to understand where emissions are occurring and have a strong awareness of their sources. This starts by understanding what equipment is in use on the ground, as methane emissions can originate from various sources. One prevalent source is pneumatic devices, which are proliferated throughout the fields. 

READ: Investor Insights: Best Practice for Emissions Reporting and Mitigation

One of our initial recommendations to companies is to perform a thorough assessment of these devices. If feasible, they should conduct an actual count to determine the exact quantity and types of devices they have, such as low-bleed, high-bleed, or non-bleed. This is crucial for devising a strategy to replace or retrofit equipment and find effective solutions. So, the first step is to understand what they have and where their emissions originate.  
 
The second step is to establish a robust program for detecting and addressing leaks. This entails integrating leak detection into their maintenance routines and processes, with operations teams identifying emissions during their regular work. While this approach is time-consuming, it's essential and helps field teams comprehend what can be easily and quickly rectified. To scale this and achieve real-time monitoring of emissions sources, the best practice is to employ on-ground methane sensors that can continuously detect and report emissions 24/7, alerting operators when leaks occur.  
 
As a guiding principle for our portfolio companies, we recommend our portfolio companies employ real-time monitoring. Quantum, as a sponsor of Project Canary, supports this approach. Project Canary specializes in this kind of monitoring and assists operators in pinpointing and quantifying leaks, thereby facilitating swift mitigation and prevention.    
 
Maryam Irfan, Industrial Decarbonization Network: Why does good methane data matter and how do you see it evolving in the future?  
 
Keila A. Diamond: It matters a lot, and for good reason. We're committed to ensuring that our portfolio companies adhere to two objectives. Firstly, they must comply with the necessary regulations at both state and federal levels. Secondly, we empower them to remain competitive. Mere compliance isn't sufficient for competitiveness; they must also meet the needs of their potential buyers at the end of their journey.  
 
Having best-in-class methane performance is vital for this goal and by that I'm referring to the data we analyze, which includes emissions data from various segments, such as production and gathering-boosting segments. We focus on understanding the precise sources of emissions. This data is valuable to an investor like us because it enables us to forecast the company's expenses, including their necessary capital expenditures, hiring needs for on-ground support, or any required consultant work to formulate an effective plan.  
 
This data helps guide our decision-making processes and assists us in helping these companies stay ahead of the tide in identifying opportunities and taking action, whether it's adapting to supply chain fluctuations, price fluctuations, or upcoming regulatory mandates.  

READ: The Making of a Successful Decarbonization Strategy with ARC Advisory
 
Maryam Irfan, Industrial Decarbonization Network: Can you share any examples of successful ESG initiatives that Quantum Capital Group has been involved in and the impact they have had on both companies and investors?  
 
Keila A. Diamond: One of the highlights I'd like to share goes back to our work with Project Canary, and the extensive deployment of on-the-ground sensors throughout our production. We strongly advise our portfolio companies to install these sensors on the ground, enabling them to swiftly detect any leaks. Additionally, we guide them to maintain an emission intensity below 0.2%, as calculated per the NGSI methodology.  
 
Staying below this 0.2% threshold is crucial for our portfolio companies to remain competitive in the market. This threshold aligns with the industry's gold standard for OGMP 2.0 (Oil and Gas Methane Partnership). We are also incentivizing our companies to proactively manage their emissions to stay ahead of the methane fee, which employs the same threshold.  
 
We will continue to guide our portfolio companies in their efforts to improve and, where feasible, remain below this threshold. This commitment applies not only to our current portfolio but also to the companies we are prospecting or considering for acquisition. We aim to evaluate their current status and identify the steps necessary to bring them to that level.  
 
Maryam Irfan, Industrial Decarbonization Network: What are you most looking forward to at this year’s Methane Mitigation Summit?  
 
Keila A. Diamond: I'm very excited to see the engagement with companies. I believe that the market will truly transform when everyone gets involved. While the larger companies, the majors, have been at the forefront of this movement, it's essential for medium and small companies to also leverage the opportunities presented by innovations, technology, and advancements in detection and quantification. This extends to how they handle maintenance and employee training. This conference offers a unique platform for exchanging experiences and learning from one another.  
 
What sets the Methane Mitigation Summit apart is its technical focus, catering to an audience actively involved in implementing solutions. Every time I attend, I come away with a wealth of knowledge. This will be my third time, and I've always appreciated the exchange of information during previous editions. So, I'm eagerly looking forward to it.  

Interested in learning more?

Keila A. Diamond will be speaking on 'Investing for a Sustainable Future: The Critical Role of Investors in US Methane Mitigation' at our upcoming Methane Mitigation Summit taking place in Houston from 5-7 December. Join 200 of your peers along with America’s largest gathering of oil and gas leaders, methane mitigation vendors, NGOs and policymakers as they talk about the latest tools, strategies and opportunities for reducing emissions across your operations. Download the agenda now!