New SEC Search Tool Shines Light on What Fossil Fuel Companies are Saying About Growing Carbon Asset Risks

January 12, 2016 /3BL Media/ - Wondering what oil companies are telling investors about growing pressures to reduce carbon pollution and what that means for their long-term oil exploration projects and overall business strategies? Ceres and CookESG Research now have a way to get the answer: a new web tool for accessing carbon asset risk disclosures in company filings with the U.S. Securities Exchange Commission (SEC).

Available at www.ceres.org/secsearchtool, this new tool allows users to find whether disclosures in annual SEC filings discuss carbon asset risks, including competition from renewable sources of energy, capital expenditures on high cost, carbon intensive exploration projects, government efforts to limit carbon emissions, and the possibility of reduced global demand for fossil fuels.

The tool also allows searches for climate and water risk disclosures, and it now includes all foreign companies that file reports with the SEC (Form 20-F and 40-F filings). It also includes searches for hydraulic fracturing risks as well as a watch list feature that allows users to track a custom list of companies.

“Robust carbon asset risk data from fossil fuel companies is a critical need, but it’s still lacking, especially given the growing worldwide focus on reducing pollution that is causing climate warming,” said Mindy Lubber, president of the nonprofit group Ceres, which has been working with investors for years to improve company disclosures and actions on the climate issue. “This tool, in combination with climate disclosure requirements enacted by the SEC, is an important step in helping investors understand how companies are responding – or are not responding – to growing climate-related risks.”

Seventy investors in Ceres’ Investor Network on Climate Risk (INCR) and the Institutional Investors Group on Climate Change (IIGCC), representing $3 trillion in assets, first asked 45 of the world’s top oil and gas, coal and electric power companies to assess carbon asset risks to their business plans in 2013.  The investors are especially focused on understanding companies’ reserves and resource exposure to the risks associated with present and future government policies for reducing carbon emissions by 80 percent by 2050 – a scenario that has new momentum on the heels of the recent international climate agreement in Paris aimed at limiting global temperature increases to less than 2 degrees Celsius. Investors have also been pressing for information on how companies are managing these risks, such as reducing the carbon intensity of assets, cutting back spending on high carbon projects and diversifying their portfolios to include more clean energy.

A new Ceres/CookESG analysis, done in just the past few weeks by using the tool, shows that fossil fuel companies are not adequately disclosing the risks that major portions of their reserves and resources that underpin their market capitalizations may not be cost effective to produce as the global economy transitions to cleaner energy sources.

Foreign companies offered far better reporting than U.S. fossil fuel firms. For example, BP discussed projections for the use of oil and natural gas and renewables out to 2035. It also discussed how it is using a shadow carbon cost in evaluating certain projects ($40/ton of CO2 equivalent in industrialized countries). Chevron, on the other hand, provided almost no information about carbon asset risks stating that “incentives to conserve or use alternative energy sources” could reduce demand for its products and affect returns and discussing some regulatory and physical risks related to climate change. Both companies provided extensive discussions of proved reserves, including detailed information for a number of projects.

While the SEC has generally refrained in recent years from taking action against companies that are not adhering to climate disclosure guidance it issued in 2010, the New York attorney general’s office ongoing investigation into the adequacy of ExxonMobil’s reporting and its recent settlement with Peabody Energy show that companies face significant risks if they disclose incomplete or misleading climate risk information to investors.

Yet Exxon’s carbon asset risk disclosures in its most recent 10-K filing have remained virtually identical from year to year since 2011. The company’s disclosures provide little decision-useful information for investors; for example, “International accords and underlying regional and national regulations covering greenhouse gas emissions are evolving with uncertain timing and outcome, making it difficult to predict their business impact” (Exxon 10-K reports, 2010-2015).

After last month’s strong climate agreement in Paris, fossil fuel companies face even more risk by failing to disclose the actions they are taking to adapt to the low carbon future. European companies have been much more responsive than United States companies to these requests. For example, in 2015 the boards of Shell, BP and Statoil recommended shareowners vote for resolutions focused on carbon asset risks.  Investors asked BP to disclose, “Asset portfolio resilience to post-2035 scenarios... We ask that an assessment of the portfolio’s resilience against the range of IEA, and any other relevant post-2035, scenarios be outlined to investors in routine reporting from 2016. Investors are also interested in the role exploration, disposals and cash distributions to investors will play in the nearer term.”

Jackie Cook of CookESG Research said, “Of the 23 oil and gas production and extraction companies on the S&P 500, disclosing a collective 77 billion barrels of oil equivalent in reserves as of the end of 2014, not one discussed the likelihood and potential impact of an international agreement to limit global warming.”

The search tool offers a unique picture of what issues companies consider material, as well as the quality of reporting they provide.

Investors will discuss the implications of the Paris agreement on the fossil fuel industry, including the need for increased disclosure and stress testing against a 2-degree scenario, at the Investor Summit on Climate Risk at the United Nations on January 27. Media interested in attending should contact fleming@ceres.org or apickering@conecomm.com for accreditation information.

About Ceres

Ceres is a nonprofit sustainability organization mobilizing business leadership on climate change, water scarcity and other global sustainability challenges. Ceres directs the Investor Network on Climate Risk (INCR), a network of more than 110 institutional investors with collective assets totaling more than $13 trillion. Ceres also directs BICEP, an advocacy coalition of 36 businesses committed to working with policymakers to pass meaningful energy and climate legislation. For more information, visit www.ceres.org or follow on Twitter @CeresNews.

About CookESG Research
Operating as CookESG Research Jackie Cook specializes in data-driven ESG disclosure analysis. Jackie founded the Fund Votes project, which tracks fund stewardship in proxy voting and comprises an indexed repository of more than 60 million voting records spanning 12 years and a growing number of reporting jurisdictions.