Oil Companies Failing to Inform Investors of Climate Change Risks

(3BL Media) Boston – August 2, 2012 Deepwater oil drilling in all corners of the world. Hydraulic fracturing for gas and oil across the U.S. Proliferating oil sands production in Canada.

A new and more risk-laden energy future is taking shape as the global thirst for fossil fuels spurs a search on frontiers once beyond technology’s reach. The environmental risks from extracting and transporting these fuels are numerous – with the 2010 Gulf of Mexico deepwater oil spill just one example of how things can go wrong. Climate change risks, including climate-driven physical impacts and regulations to control carbon emissions, also create financial exposure for oil and gas companies.

Yet gigantic flows of investment money are being directed into these efforts.

A new Ceres report says that investors supplying that money aren’t getting a clear picture from companies of just how deep the material risks to these investments are.  Without that kind of transparent disclosure of business risk—a requirement for corporate reporting in U.S. Securities and Exchange Commission (SEC) filings—a fundamental underpinning of the global economy’s health is missing.

The report, “Sustainable Extraction? An Analysis of SEC Disclosure by Major Oil & Gas Companies on Climate Risk and Deepwater Drilling Risk,” tracks SEC-mandated disclosure on those risks by 10 of the world’s largest publicly-owned oil and gas companies. It contains specific recommendations for improving both disclosure and corporate performance in these areas.

The report’s findings are worrying: No company surveyed provided high-quality reporting of the wide-ranging risks they face from deepwater drilling or climate change, and how they’re managing these risks.

“Investors deserve better disclosure than this, and the SEC requires it,” said Ceres President Mindy Lubber. “As the BP Gulf spill, the Total gas leak in the North Sea, and several other recent mishaps show, the risks of extracting oil and gas from remote places by ever-more-complex methods are profoundly real, even before considering how climate change and carbon emission mitigation can impact these projects.”

“This report should act as a ‘wake up’ call for investors in assessing risks in this important sector,” said New York State Comptroller Thomas P. DiNapoli, trustee of the $150 billion New York State Retirement Fund.

“The era of easy-to-access resources is over, and the risks of underestimating the impact of climate change and the challenges of deepwater oil and gas development are clear,” said Bennett Freeman, senior vice president of sustainability research and policy at Calvert Investments. “Meeting the energy needs of a growing planet need not threaten the viability of ecosystems or the lives of the workers who supply our oil and gas. Material climate change and deepwater oil and gas development risks—and the steps companies are taking to address them—are important investment considerations and should be disclosed.”

Companies evaluated in the “Sustainable Extraction?” report were Apache, BP, Chevron, ConocoPhillips, ENI, ExxonMobil, Marathon, Shell, Suncor and Total. The report finds that BP, ENI and Suncor provided relatively better climate risk disclosure than others in the report – Apache, Marathon and ExxonMobil had the weakest disclosure – but that out of an aggregate 60 separate climate disclosure scores just five were good, while 34 (57 percent) were either poor or “no disclosure.”

On deepwater drilling risk disclosure BP and Total provided relatively better disclosure, while Suncor’s disclosure was the lowest in quality. But again, out of 50 aggregate disclosures measured just four were good while 29 (58 percent) were either poor or “no disclosure.” The report notes that BP’s improved deepwater disclosure came about after its giant spill in the Gulf of Mexico.

Other forms of unconventional fossil fuel extraction also face climate risks, particularly from ever-increasing carbon-reduction rules such as proposed low-carbon fuel standards, specifically:

  • Hydraulic fracturing for natural gas and oil creates wide-ranging environmental risks, including proliferating emissions of the potent greenhouse gas methane from wellheads all across the U.S.
  • Increasing oil sands production in Canada is one of the most carbon-intensive forms of oil on a lifecycle basis, making it especially vulnerable to a low-carbon fuel standard.

“Sustainable Extraction?” makes specific recommendations for improving disclosure and performance:

Climate Risk:

Oil and gas companies evaluated in the report provided inadequate information to allow investors to fully gauge their exposure to evolving climate risks and opportunities. Therefore:

  • Companies need to provide more information about both risks and opportunities presented by climate change.
  • Investors should continue encouraging companies and securities regulators to improve climate risk reporting.
  • Securities regulators including the SEC and the Canadian Securities Administrators must improve climate reporting in the oil and gas industry by closely reviewing whether filings comply with their recent guidance on environmental disclosure.
  • Federal and state governments should communicate scientific findings and other climate change developments to companies, investors, and securities regulators.

Deepwater Drilling Risk:

Few companies provided good disclosure in important deepwater drilling categories including drilling risk management, statistics and spill response.  Yet companies continue to expand deepwater exploration and production, posing significant risks to investors and stakeholders. Therefore:

  • Companies should improve their deepwater drilling risk disclosure, particularly of environmental, health and safety (EHS) performance data, investment in spill prevention and response, spill contingency plans, contractor selection and oversight, and governance and management systems.
  • Investors should renew their efforts to improve corporate reporting on deepwater and offshore drilling risk disclosure.
  • The SEC should focus on drilling-related risks, applying existing material risk reporting requirements to improve oil and gas companies’ disclosure.
  • Federal and state governments should pursue collaborations on offshore drilling risk management with companies, investors, and securities regulators.

The full report can be viewed at: http://www.ceres.org/resources

Contact

Peyton Fleming
+1 (617) 733-6660
fleming@ceres.org
Ceres

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