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The Actuary The magazine of the Institute & Faculty of Actuaries

Oil and gas firms not transparent on future resources risk

Global oil and gas firms are not disclosing enough information for investors to weigh up how growing concerns about climate change might affect that company’s future production and long-term viability, Carbon Tracker has said.

New ‘model’ for climate-secure reporting ©iStock
New 'model' for climate-secure reporting ©iStock

Carbon Tracker’s report, Reporting for a Secure Climate a Model Disclosure for Upstream Oil and Gas said corporate climate disclosures offered investors little visibility over the future resources and reserves at greatest risk. 

By using Shell, BP, Equinor, ConocoPhillips, and ExxonMobil disclosures as examples, the report indicated steps needed to improve transparency over future material risks, including key climate, demand and regulatory challenges.

Carbon Tracker’s new ‘model’ for climate-secure reporting advises that an ideal climate risk disclosure log should contain:

  • Expected future capital expenditure on exploration and development activities – allowing investors to assess whether a business-as-usual strategy might result in ‘stranded’ assets
  • Transparency over the material assumptions that underpin a company’s upstream strategy – so investors may understand whether these take climate constraints into consideration
  • A sensitivity analysis to allow investors to assess possible impact on the company strategy and financial position of oil and gas prices being lower than expected. 

Carbon Tracker noted that the Network for Greening the Financial System - which comprises 34 central banks and experts on climate risk – estimated potential losses of transition risk to the energy sector alone of between $1tn-$4tn.  

It pointed to the warning in April from Bank of England governor Mark Carney that $20tn of assets globally could become worthless if climate change and the burning of fossil fuels was not properly addressed.

Meanwhile, campaign group Global Witness has said in its report Overexposed: How the IPCC’s 1.5°C report demonstrates the risks of overinvestment in oil and gas that the global oil and gas industry is still set to spend $4.9tn on new oil and gas fields. 

It said production from these would be incompatible with limiting warming to 1.5°C, the Paris climate agreement target. 

Global Witness called on the UK government to end oil and gas extraction in the North Sea.

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