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More Disclosures Requested From Oil Companies

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More Disclosures Requested From Oil Companies

Investors and nonprofits have requested five of the largest US oil companies (Valero, Exxon Mobil, Marathon Petroleum, Phillips 66 and Chevron) to disclose the risks faced by their operations and facilities due to rising sea levels and storm surges. In official letters signed by Calvert Investments, Pax World Management, Walden Asset Management and other investors in late February, concerns over the ‘lack of public disclosure on physical risks attributed to climate change’ were raised. These letters are closely linked to a report, released by an advocacy group known as the Union of Concerned Scientists that highlighted the danger of potentially costly disruptions (affecting companies’ cash flows) in refining operations when sea levels rise. This report was based on storm surge modeling and geospatial data to map risks of flooding in coastal refineries in low-lying areas.

Yet, there is a lack of response from these companies towards the released report.  A Valero spokesperson claimed that a detailed ‘hurricane response plan is in place and that the company’s refineries have an excellent safety and reliability record’. Chevron responded by claiming that the company ‘recognizes concerns related to climate change and incorporate these risks into their business planning activities’. Other companies did not respond to the requests by press time.

Although oil companies may be thinking about climate change risks, it is clear that they are not reporting enough or sharing these issues with shareholders. In addition, it is difficult to discuss about protecting physical assets without acknowledging the existence of climate change. There is doubt over whether oil companies are serious about tackling climate change given reports that the energy industry has been funding climate change denier’s work.  In a controversial case, the Guardian, claimed that over the past 14 years, Exxon Mobil has been funding a researcher at the Harvard-Smithsonian Centre for Astrophysics who ‘contends that climate change is not attributed to rising greenhouse gas emissions but rather driven by the sun’.

As the public begins to understand the severity of the impacts of climate change, there will be rising interest from multiple parties calling for companies to share how climate change has been considered in their business plans. This will encompass a detailed risk analysis not just from the perspective of physical damages to assets but also financial risks, reputation risks, and legislative risks among others.

A number of security exchanges and standard setters have played a role in encouraging such disclosures by public-listed companies. One example include the US Securities and Exchange Commission that issued a guidance document in 2010 suggesting that companies disclose climate related risks that might affect the bottom line of companies. Also, the Sustainability Accounting Standards Board (SASB) was established with the aim of disseminating sustainability accounting standards that help public companies disclose material, decision useful information to investors. Yet, the uptake by oil companies is still notably low.  This could be attributed to the fact that disclosures on climate change risks are currently voluntary and there is no legislation on such reporting requirements.

Renard Dr Renard Siew is a researcher based at the Centre for Energy and Environmental Markets (CEEM). His research interest lies in sustainability, integrated reporting, ESG research, socially responsible investment (across different asset classes: equities, infrastructure and property, real estate), climate change, sustainability strategy and green construction for the building/infrastructure sector. Renard did his PhD at UNSW with the support of the Australian Postgraduate Award (APA) Scholarship. He has published in international refereed journals on various sustainability issues in Asia.