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August 02, 2012
Despite SEC Guidance, Disclosures by Oil and Gas Companies Are Insufficient
    by Robert Kropp

A report from Ceres finds that ten of the largest companies in the oil and gas sector are failing to provide sufficient disclosures on climate change and deepwater drilling.


Fossil fuel combustion is the single most significant contributor to climate change, so one might think that companies engaged in oil and gas extraction would be paying especially close attention to interpretive guidance on climate change issued by the Securities and Exchange Commission (SEC) in early 2010.

Such is apparently not the case, according to a new report published today by Ceres and David Gardiner & Associates. Entitled Sustainable Extraction? An Analysis of SEC Disclosure by Major Oil & Gas Companies on Climate Risk and Deepwater Drilling Risk, the report studies the disclosures by 10 of the world's largest publicly-owned oil and gas companies, and in most cases finds them lacking.

The report, which analyzes the corporate financial filings for the first quarter of 2011, focuses much of its attention on deepwater drilling. For instance, it found that in the aftermath of the massive Gulf of Mexico oil spill in 2010, disclosures on deepwater drilling by BP and other companies improved. " However," the report points out, "Even the best reporting provided narrative discussions of deepwater drilling policies and actions, without providing investors sufficient metrics to evaluate the success of new policies designed to reduce the risks of accidents."

"The quality of climate risk disclosure in SEC filings is generally inadequate to allow investors to conduct complete and accurate assessments of risks and future performance," the report continued. Rating each company on six climate change disclosures and five deepwater drilling disclosures, the report found that well over half of both were either poor or nonexistent. The climate change disclosures of Apache and ExxonMobil were rated the worst, as were the deepwater drilling disclosures of Suncor.

Arguing that oil and gas companies must "align their climate risk and deepwater drilling risk disclosure with SEC rules and investor expectations," the report provides a number of recommendations for improvement.

The potential business impacts of climate change must be accounted for more effectively by oil and gas companies, and risk disclosures on deepwater drilling should "focus on providing data that allows investors to measure both improvements in performance and ongoing deficiencies or setbacks."

The report commends investors for their "great strides" in pressuring companies to disclose climate change-related risks, and recommends that they now engage with the SEC and other regulators to ensure that the quality of reporting is sufficient. Also, with Shell and other companies now expanding deepwater drilling into the Arctic, investors "should work with companies to develop improved disclosure metrics and push for improved practices to reduce the risks inherent in offshore drilling."

The SEC and other regulators are advised to ensure that corporate disclosures on climate change and deepwater drilling are sufficiently robust, and notify companies when those disclosures are inadequate.

As conventional oil deposits grow increasingly scarce, oil and gas companies are relying more and more often on deepwater drilling and other unconventional extraction methods such as hydraulic fracturing and oil sands development. "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," Freeman continued. "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."

 

 
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