PARIS, May 3 — Oil and gas majors are failing to disclose to shareholders the full extent of risks to their business models posed by climate change legislation, experts said yesterday.
The energy sector is thought to be exposed to between US$1-4 trillion (RM4.14-16.5 trillion) in transition risks alone as the world switches to renewables and pressure grows on policymakers to slash greenhouse gas emissions in line with the Paris climate goals.
Carbon Tracker, an international team of financial experts who analyse the oil and gas sectors, said fossil fuel giants were of “principal concern” to investors, particularly companies with significant upstream exposure.
The Paris deal enjoins nations to limit global temperature rises to “well below” two degrees Celsius, and to 1.5C if at all possible.
The UN’s own climate change body says those targets are only realistic with a rapid and drastic reduction of emissions from fossil fuels.
A study last month by the watchdog Global Witness found that the US$4.9 trillion oil and gas majors plan to invest on seeking out and drilling new fuel sources was “poles apart” from the Paris goals.
Another monitor, InfluenceMap, found that energy giants had spent over US$1 billion on lobbying against greener legislation since the Paris deal was struck in 2015.
Energy companies’ ability to generate investment is largely tied to their ability to find new, recoverable oil and gas sources—a process that requires significant upfront capital.
“It is future resources and reserves that have not yet been developed into producing assets that are at greatest risk,” said Kate Woolerton, senior accountant at Carbon Tracker.
“However, current accounting and disclosure practices offer investors little visibility over this.
“They are disclosing bits but they are not disclosing the full picture,” Woolerton, lead author of Carbon Tracker’s Reporting For A Secure Climate report, told AFP.
In particular, companies tend not disclose breakdowns of future investment plans into upstream and downstream activities, according to Carbon Tracker.
Divestment
There are signs that investors are growing wary of non-transparent future oil and gas activities that may well end up as stranded assets when pipelines and refineries are mothballed.
One recent British survey among fund managers responsible for US$10 trillion of assets found that 86 per cent wanted oil firms to commit to the Paris goals, while two thirds wanted to switch investments to low-carbon alternatives.
A global divestment movement is also gathering pace, with funds totalling more than US$8 trillion having committed to cease investment in upstream oil and gas activities.
A lawsuit was launched last year against US behemoth ExxonMobil that alleges it deceived shareholders by downplaying the risks posed to its business by climate change regulations.
“Investors need visibility over what these companies were going to spend their money on,” said Woolerton.
She said companies often used the excuse that detailed capital expenditure disclosure would put them at a commercial disadvantage against competitors.
“There’s a case of not wanting to be the first mover. But if we can get everyone to disclose this information there would be no commercial disadvantage in doing so,” Woolerton said. — AFP
