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October 18, 2014
Fossil Fuel Companies Failing to Integrate Risk
    by Robert Kropp

Research by the Carbon Tracker Initiative reveals that while most fossil fuel companies acknowledge climate change as a risk, very few are integrating climate risks into project and capital expenditure assessments.

A short while before he died at the age of 83, my estimable friend Edgar May—Holocaust survivor, Pulitzer Prize winning journalist, domestic Peace Corps official during the Kennedy administration, and lifelong community activist—asked me what I wrote every day. About corporate social responsibility, I responded. Ah, he said. So you write fiction.

The cynicism of Edgar and so many others can be excused when one considers the responses earlier this year by ExxonMobil and Shell to shareowner inquiries about stranded assets, the fossil fuel reserves that will have to stay in the ground if the most calamitous effects of climate change are to be avoided. As You Sow withdrew a shareowner resolution when Exxon agreed to report on the issue; but the oil and gas giant then stated that it will continue to have the social license to burn all the fossil fuel reserves counted as assets on its books, despite the grave implications for a world already being transformed by climate change.

“Exxon to World: Drop Dead,” Oil Change International stated in response to Exxon's report.

Similarly, in its response to investors, Shell stated, “The world will continue to need oil and gas for many decades to come, supporting both demand, and oil & gas prices. As such, we do not believe that any of our proven reserves will become ‘stranded’.”

According to a recently published analysis by the Carbon Tracker Initiative (CTI)—the UK-based nongovernmental organization (NGO) whose 2011 report brought the issue of stranded assets into widespread public consciousness—Exxon and Shell are hardly alone among fossil fuel companies that are failing to adequately integrate climate risk into project and capital expenditure assessments.

The 81 fossil fuel companies whose disclosures were analyzed in CTI's report represent, the NGO states, “a ‘best in class’ sample,” as they are among the relatively few that responded to the annual questionnaire from CDP. The companies are also included in CTI's list of the 200 largest fossil fuel companies as measured by reserves.

The companies analyzed by CTI “unequivocally display an awareness of climate change as an issue and a belief that it could poses a risk to their business,” the report states. “86% of companies consider climate change to pose physical risks, while 99% of the sample deem climate-related regulation to be a risk.”

“In spite of this high level of awareness of climate-related risk,” the report continues, “companies are failing to connect the dots when it comes to applying this knowledge through risk management measures. 80% of oil and gas companies did not display evidence of running climate scenario analyses of different temperature increases due to climate change, with only 10% of companies going on to stress-test projects against conditions similar to a 2°C future.”

The analysis, CTI observes, “should make investors question whether initial risk disclosures by fossil fuel companies are merely boilerplate rhetoric without much influence, and should serve as a call to financial regulators for greater scrutiny on climate-related risk integration.”

“To ensure financial actors look more to the long-term on these matters, regulators must increase scrutiny on how climate risk is properly disclosed by listed fossil fuel companies, the most affected sector,” CTI Executive Director Mark Campanale said.

“This report highlights the vast gulf between what investors are looking for and what energy companies are not providing in regards to financial risks from high carbon, high cost fossil fuel projects,” Ceres president Mindy Lubber added. “Investors should step up their calls to companies to better explain these huge expenditures.”


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