A group of investors representing about $2 trillion in assets wants the Securities and Exchange Commission to force oil and gas companies to detail in their financial filings how policies that address climate change could affect their businesses.
The 59 institutional investors, organized by nonprofit group Ceres, said they’re concerned about “stranded assets” at oil and gas companies. The thought is that some resources that companies currently tabulate in their business plans might be unprofitable to develop if nations take measures to curb global warming, which many scientists say is driven largely by greenhouse-gas emitting fossil fuels.
Some oil and gas companies have assessed the risk, but the investors said in a letter to commission Chairwoman Mary Jo White that those efforts have been half-hearted. ExxonMobil, for example, said its business model wouldn’t be affected because it considers a global climate change treaty to keep temperatures from rising 2 degrees Celsius by 2100 unlikely. It also didn’t disclose the findings of its stress tests.
That’s where the investors want to see changes. They want oil and gas companies to not only conduct such analyses, but also to cough up the data.
“[T]here has been a lack of meaningful, substantive carbon asset risk disclosures in response to these investor requests. A recent report analyzing voluntary climate risk reporting by 49 oil and gas companies found low levels of assessment of these risks and application of the findings to current and future exploration projects,” the letter to White said.
The letter comes a day after BP shareholders backed a resolution to be more open about how climate change could affect its operations. Royal Dutch Shell soon will vote on a similar measure. Unlike ExxonMobil, the boards for BP and Shell supported the efforts, said Jim Coburn, a program manager with Ceres, which runs the Investor Network on Climate Risk.
“That’s the most amazing example we’ve seen,” he told the Washington Examiner. “The companies have taken a significantly different stance than Exxon and others.”
Ceres and other investors are hoping to build on that. In 2010, the Securities and Exchange Commission instructed companies to disclose vulnerabilities to climate change. Ceres, however, contends companies’ reporting has been shoddy.
The investors said the commission was within its right to compel more information.
The regulatory agency says “registrants must identify and disclose known trends, events, demands, commitments and uncertainties that are reasonably likely to have a material effect on financial condition or operating performance.” The investors contend that climate policies that make emitting greenhouse gases more costly, a shift toward renewable energy and low oil prices that make harder-to-access reserves less profitable all fit that description.
But the SEC also says that, “Disclosure of a trend, demand, commitment, event or uncertainty is required unless a company is able to conclude either that it is not reasonably likely” it will come to fruition or that it wouldn’t result in a “material effect.” Ostensibly, that’s why ExxonMobil decided not to adjust its business model or to release its data.
Still, even if nations can’t agree on a global treaty at United Nations negotiations that begin in December, fossil fuel companies are facing other headwinds.
The investors said markets are foreshadowing an asset crunch. The nonprofit Carbon Tracker Initiative said in a report that companies planned to spend $1.1 trillion on exploration and production over the next 10 years at a break-even oil price of $80 per barrel. But with oil hovering at around $50 for several months, $1 trillion worth of projects face cancellation, the letter said.
“It’s not an all-or-nothing thing. Even if there’s not a global deal on climate change you have California, one of the biggest markets in the world, requiring lower emissions from cars,” Coburn said. “Our arguments rest on a lot of factors, not just a global climate deal or a price on carbon.”
