Investors seek more disclosure
A group of investors representing $1.9 trillion in investments asked regulators last week to force oil and gas companies to provide more disclosures about climate-related risks to their businesses. The request is the latest move in a growing investor movement to remove the cloak of secrecy from the industry and require oil and gas companies to behave as those in other industries do.
The request was made in a 10-page letter to Mary Jo White, head of the Securities and Exchange Commission, and signed by 62 institutional investors from the United States and Europe. The letter cites a lack of disclosure of “carbon asset risks” in SEC filings by oil and gas companies. The signers contend that these risks constitute “known trends,” which are required to be reported according to SEC rules.
The group argues that carbon assets could become “uneconomic” if climate-related trends permanently undercut prices and demand for fossil fuels.
From the letter:
The economics of the oil and gas industry are changing rapidly as exploration and production costs increase. As conventional oil and gas reserves decline, companies have been forced to increase investments in high cost, carbon intensive “unconventional” exploration projects.
Since 2005, annual upstream investment for oil has increased by 100%, from $220 billion in 2005 to $440 billion in 2012, while crude oil supply has only increased 3%. In 2014 the global oil industry spent $650 billion on exploration and development of new reserves, which is producing diminishing marginal returns in terms of new reserves being added.
Thus, the industry is investing more money to produce less oil and has become less profitable in recent years.
The Carbon Tracker Initiative (CTI) estimates oil and gas companies are likely to spend approximately $1.1 trillion in capex (capital expenditures) from 2014 – 2025 on high cost, carbon-intensive exploration projects that require at least an $80 break-even price.
Due to recent low oil prices, we have seen oil majors cancel or delay billions of dollars worth of projects, and nearly $1 trillion of projects face the risk of cancellation.
BP shareholders pass legally binding disclosure resolution
The letter came a day after 98% of BP shareholders passed a resolution requiring the company to begin reporting on “ongoing operational emissions management; asset portfolio resilience to the International Energy Agency’s (IEA’s) scenarios; low-carbon energy research and development (R&D) and investment strategies; relevant strategic key performance indicators (KPIs) and executive incentives; and public policy positions relating to climate change.”
What is unusual about the resolution for BP, a UK-based corporation, is that it is legally binding under British law. Shareholders have often asked US corporations to disclose similar information, and several requests are included in resolutions to be considered at annual meetings in the near future. But in the US these resolutions are not binding, and corporations do everything they can to avoid them.
A growing movement
The movement for disclosure is now growing rapidly. Last April we wrote about a group of investors who published a report called Disclosing the Facts: Transparency and Risk in Hydraulic Fracturing Operations that documented the lack of transparency of oil and gas companies with regard to the impact of their operations on the environment.
It’s unclear how the SEC will respond to the letters, or how quickly it might act if it agrees that more disclosure is warranted.” The SEC could act quickly here if it wanted to,” said Jim Coburn of Ceres, an advocacy organization for sustainable environmental leadership. “We would love the SEC to really embrace the concept of climate risk, and to acknowledge that, apart from what happens in Paris [on a climate treaty], there’s a trend toward low-carbon economies that’s picking up speed.”