I wrote a post a couple of weeks ago on the Double Climate Risks faced by the Gulf Coast region. The climate risk of a quickly changing climate and the risk associated with a more climate aware market and consumer. It is expected that the Gulf Coast is likely to see significantly more extreme weather events due to climate change and with 70% of the Gulf Coast economy still tied to oil and gas, we may see some direct economic impacts as consumer preferences shift, particularly in a shift to electric vehicles and renewable energy. Today’s post is focused on the growing sense of shareholder risk that is being felt due to lack of transparency by oil and gas companies of their climate risk. Further, what is important to consider is that this lack of transparency is not only a problem for shareholders, it should also be seen as a problem for the entire Houston-Galveston Community. As shared earlier, our economy is still largely dependent on the oil and gas sector. If we are not made aware, or allowed to understand, the potential risks that some of our largest employers face, then we cannot properly plan and prepare for the future viability of our economy and community.
Oil and gas companies have likely known for a significant amount of time about the risks associated carbon emissions and climate change. They will model economic, regulatory and environment scenarios in regards to climate change and attempt to plan appropriately for the most likely event. Or, more likely, lobby extensively to maintain the status quo and reduce the likelihood of these economic and regulatory scenarios from coming about. We know this is occurring. The recent ExxonMobil flare-up is a good example of what may have been known and the efforts made to limit this reality. Exxon Mobil has been in the news lately largely due to its understanding of the risks associated with climate change back in the 1970s and its alleged lack of disclosure of this risk to shareholders. (ExxonMobil disputes this lack of transparency and the question is currently being decided in the courts.)
With this growing concern by shareholders, 2017 does seem to see a move toward greater transparency, albeit kicking and screaming. Much of the movement is occurring across the pond. Ten non-US headquartered oil and gas companies have created the Oil and Gas Climate Initiative to develop the appropriate strategies to ensure a more carbon friendly energy sector. Shell has been an early leader with a commitment to invest $1 billion per year in renewable energy by the year 2020 and ties its executives salary bonuses to greenhouse gas performance goals. Other companies getting on board have been Total and BP.
In the United States, Occidental Petroleum shocked many with the shareholder vote requiring the disclosure of carbon risk. Although the board was lobbying against the idea, major investors, including BlackRock and Calpers, secured the votes to make it a reality. ExxonMobil and Chevron both rejected climate disclosures resolutions in 2016 and look to do the same in 2017. That being said, in March of this year Chevron , in an SEC filing, explicitly warned shareholders of the material risk to the company due to climate change related regulations and lawsuits. However, Chevron goes on to say in another report that it does not see any decrease in oil and gas consumption in the near to mid-term and so does not anticipate any material impact on its income due to climate change.
The fact of the matter is that with or without the United States, the world is changing. There is a movement toward to greater efficiency, deployment of renewable energy and storage technologies and electric vehicles. (Check out LLNL Energy Flow Chart to see where all of our petroleum goes.) A report by Carbon Tracker finds that $2.2 trillion of stranded fossil fuel assets are at risk, with the United States potentially seeing the greatest loss. It is anticipated that this will occur as countries continue to work toward their Paris Agreement goals and as clean energy technologies become cost competitive.
The risk for shareholders and for communities, like Houston, is that the oil and gas companies, the economic engine for the region, are not actively adjusting through investment and portfolio diversification, or are aware of this shift, and due to short-term financial interests, are not willing to disclose the risk. Some level of climate risk transparency is necessary for good decision making and planning in our community, without it we continue with business as usual to our detriment.
Source: Carbon Tracker Report