Oil Majors and Climate Risk:What Investors Need to Know
Recent media reports suggest that investigations by the New York Attorney General into ExxonMobil on climate change are now considering present-day disclosures such as how its reserves may be impacted by climate risk issues. This report examines the ten largest integrated oil and gas majors in North America and Europe and looks at how thoroughly they are disclosing on some key climate-related metrics likely to have a major impact on the future shape and value of their businesses. Exxon, Occidental and Chevron are at the bottom of the table, suggesting these three warrant particular investor scrutiny.
The key risk issue is the proliferation of zero emission vehicles (ZEV) and hybrids resulting in descreasing demand for petroleum products used in road vehicles, which on average provide at least 35% of gross revenue of the oil majors. The research found scant disclosure by the oil and gas majors on their precise projections for ZEV penetration and impact on gasoline/diesel sales.
"Following the Paris Agreement, investors want to know how oil and gas companies can survive, and even thrive, in the transition to a low carbon economy. This requires more detailed disclosure of the impact on asset portfolio resilience of low carbon scenarios including disruptive technologies, such as zero emissions vehicles, and the strategic response. Investors also expect oil and gas companies to play a supportive role in developing public policy to support the transition.” Colin Melvin, Global Head of Stewardship, Hermes Investment Management
"We believe oil and gas majors can play a positive and leading role in the transition to a low carbon economy, but for that, we need to be able to collectively work on the challenges of meeting the global climate target. Firms have to be more transparent on their long term energy assumptions and CAPEX sensitivities to new technologies that can impact their future business models." Meryam Omi, Head of Sustainability and Responsible Investment Strategy, Legal & General Investment Management
"The issue of reserves impairment disclosure by the oil and gas majors is now firmly in the spotlight in the wake of the Exxon investigations. Investors and pension holders have a right to know how these companies think their reserves will be affected by climate regulations. Steven Heim, Managing Director, Boston Common Asset Management
"The disparities in these companies' vision of the future are huge and this should be a cause for alarm for investors. Shareholders are right to query information from management that they consider unrepresentative of the real risks facing the company. Where the information disclosed about the potential impact of climate risk to the business is false, misleading or incomplete, and this affects the share price, investors can sue. These cases could well represent the next wave of shareholder class actions." Alice Garton, Senior Corporate Lawyer, ClientEarth