Elizabeth Driay, Trading and Risk Management Expert, gave an alarming workshop during the Global Commodity Risk Management Forum 2016. The topic of the workshop was the environment –both metaphorically and literally– that surrounds oil and LNG Companies.
Elizabeth pointed out that environmental issues are becoming more and more prominent globally, as agreements are being negotiated and signed at a universal level.
“Exxon was accused of having misled investors and the public about the risks of climate change.”
Specifically, Elizabeth pointed out that the United Nations have in place a Sustainable Development plan, according to which a variety of objectives, ranging from socially-related ones, such as education, to environmentally-related ones, such as carbon footprint and water management, are expected to be met.
The ComRisk 2016 speaker draws our attention particularly to the goal that pertains to water and sanitation, reading that, by 2030, we should have “improved water quality by reducing pollution, eliminating dumping and minimising release of hazardous chemicals and materials, halving the proportion of untreated wastewater and substantially increasing recycling and safe reuse globally” (United Nations).
“Efforts by fossil fuel companies to downplay climate change are akin to the way the tobacco industry promoted smoking for years in spite of health warnings.”
Furthermore, Elizabeth considers The Paris Agreement –adopted in December 2015 by 195 governments– a historic turning point on climate change. The world’s nations agreed to limit global average temperature rise to “below 2°C above preindustrial levels, and to pursue efforts to limit the temperature increase to 1.5°C above pre-industrial levels”. One of the innovations that emerged from Paris was the official recognition of the role played by businesses, investors, cities and provinces in driving and delivering climate action.
The environmental risks are urgent: The Global Risks Landscape 2016 list showed that the top slots in terms of likelihood and impact are occupied by environmentally-related risks.
Now, what is the response of oil and gas companies?
Elizabeth uses Exxon Mobil as a food-for-thought case study; Exxon was sued over climate change cover-up. Specifically, the oil and gas corporation was accused of having been conducting research with regards to the environmental footprint of its businesses since the 1980s; the results of this research, though, have been said to have been covered up, in order for the company to secure its place in the market. In other words, Exxon was accused of having misled investors and the public about the risks of climate change. In the words of Gore, an active climate policy advocate, “efforts by fossil fuel companies to downplay climate change are akin to the way the tobacco industry promoted smoking for years in spite of health warnings”.
“It seems that fossil fuel companies that have deceived –or accused of having deceived– investors about the risks climate change poses to the planet and to their bottom lines are nowadays more likely to be held accountable.”
It seems that fossil fuel companies that have deceived –or accused of having deceived– investors about the risks climate change poses to the planet and to their bottom lines are nowadays more likely to be held accountable. In the case of Exxon, investors have started to target it over the climate issue; the Securities and Exchange Commission ruled that Exxon must include a climate change resolution on its annual shareholder proxy.
Nevertheless, most of the big investors seem to fail to act on climate change, despite a stark warning from the Bank of England Governor Mark Carney’s about the “potential for huge losses from a sudden shift in regulation designed to curb global warming and fossil fuels”. Climate related issues could destabilise financial markets in the coming years, and the interested parties should probably look into the case more seriously. Only a few of investors do so and are taking steps, such as measuring carbon pollution in their portfolio, supporting shareholder resolutions for more transparency of climate risk, and investing in clean technologies.
“The Task Force on Climate-related Financial Disclosures (TCFD) might be a way forward into a more environmentally-friendly the future.”
The Task Force on Climate-related Financial Disclosures (TCFD) might be a way forward into a more environmentally-friendly the future. TCFD will develop voluntary, consistent climate-related financial risk disclosures for use by companies in providing information to investors, lenders, insurers, and other stakeholders. The work and recommendations of the Task Force will help firms understand what financial markets want from disclosure in order to measure and respond to climate change risks, and encourage firms to align their disclosures with investors’ needs.
The fact that these disclosures are of a voluntary nature, though, might be questionable regarding the actual benefit to the nature…
Elizabeth Driay, Trading and Risk Management Expert
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