Oil firms asked to account for climate change risk

A group of global institutional investors have asked the world’s oil companies to determine how much risk they face from potential policies to reduce carbon emissions.

Big global investors want to know how they're planning for peak oil and emissions caps

An oil sands facility seen from a helicopter near Fort McMurray, Alta. A group of big investors has asked oil companies how they will manage the business risk of climate change. (Jeff McIntosh/Canadian Press)

A group of global institutional investors have asked the world’s oil companies to determine how much risk they face from potential policies to reduce carbon emissions.

Two U.S.-based ethical investment companies — Ceres and Carbon Tracker Initiative — have written to 45 of the world’s oil companies on behalf of big pension and institutional investors to ask about how they intend to manage demands to deal with climate change.

“There is a deep concern that the industry, especially the oil and gas industry, is betting vast amounts of capital contingent on a future of ever-increasing demands for ever-more expensive fossil fuels and the companies that I work with are concerned that that future is looking increasingly less likely,” said Andrew Logan, director of oil and gas programs at Ceres.

Ceres has a track record of drawing corporate attention to issues of governance and environmental sustainability, he said in an interview with CBC’s Lang & O’Leary Exchange.

But the letter he wrote was backed by 70 of the world’s largest investors, who hold $3 trillion US in assets, including considerable exposure to the mining and oil and gas sectors. For them, it’s a matter of knowing the risks that underlie their investment.

“Part of it is to better understand whether [oil and gas companies] are or are not factoring climate change and other risks into their decisions. Part of the problem for investors is that the level of disclosure for the industry right now is quite poor. It’s very hard to know who’s on top of this and who’s a laggard,” Logan said.

An SEC guidance instruction issued in 2010 recommended that companies take some measures to disclose their risk to climate change issues, but compliance with the recommendation has been spotty, Logan said.

“If you look who is investing capital in ever-more-expensive and ever-more-intensive carbon projects, whether it’s oilsands or the Arctic, you can infer from that whether they believe the risks are real or they simply aren’t paying attention to them.”

Logan points to predictions that the world will reach its peak oil demand within the next decade, by 2020. He says fuel efficiency is rising around the world, there is trend to switch from trucks to trains and from oil for power generation to natural gas. At the same time industry costs are rising.

“Goldman Sachs just said that last year alone the cost of finding a new barrel of oil went up by 20 per cent in a single year. The industry is betting increasingly on very high cost new sources of oil,” Logan said.

Companies that hold oilsands resources are particularly susceptible to escalating costs to handle climate change because their reserve base is carbon- and water-intensive to develop.

Among the companies that received the letter are Suncor Energy Inc., Canadian Natural Resources Ltd., Exxon Mobil Corp., Royal Dutch Shell PLC and France’s Total SA, all with significant oilsands reserves.

U.S. President Barack Obama is putting pressure on Canada to improve its climate change record before he will approve the Keystone XL pipeline, which would carry Canadian oil to the U.S.

That pressure and international efforts to reduce the amount of carbon released into the atmosphere may push Ottawa to impose stricter emission standards within the next few years. The risk for the oil industry is decreased consumer and industrial demand for fossil fuels and increased costs to manage climate change.

“I think really we’re looking to go into a deep conversation with these companies around their business strategies and how that meshes with a future of potentially decreased demand and greater action on climate change,” Logan said.