3 reasons why fossil fuel companies should disclose their reserves

These upstream emissions are expected to increase as the world’s conventional fields get depleted and companies turn to fields that require more energy to extract, such as oil sands.

2. Investors are increasingly asking for information on emissions performance.

In light of the climate challenge and government commitments to address it, disclosure requirements are on the rise as investors want to know more about their investments, especially in the fossil fuels arena.

New analysis by Reuters shows that 48 percent of the world’s 4,400 largest companies report their emissions to investors and stakeholders. This disclosure trend will continue, as socially responsible investing has grown 10-fold since the 1990s and continues to outpace other strategies. Investors are most concerned about the future performance of companies, and data on potential emissions from reserves in the ground offer valuable information about a company’s future prospects. Increasing climate protection policies, like Canada’s carbon tax, could affect the valuation of their assets and eventually profits, so it’s essential for investors to know the potential emissions so that they can calculate the expected liability.

Investors have already collaborated on a number of initiatives to standardize the disclosure of carbon-related data and improve data availability in the fossil fuel industry. For example, CDP’s annual climate change questionnaire has a module tailored to the oil and gas industry that calls on companies to disclose production and reserves by reserve type, emissions by stage in the value chain and development strategy. The Global Climate Disclosure Framework, a reporting guide issued by the Institutional Investors Group on Climate Change, Ceres and the Investor Group on Climate Change, calls on oil and gas companies to disclose the carbon intensity of their operations. Potential emissions data offers a complimentary perspective here because, when combined with data on reserve size, it is an indicator of the carbon intensity of future production.

3. Companies are reducing the size of their reported reserves to reflect big structural changes in the economy.

In order to keep global temperature rise within range of safe levels, fossil fuel companies will need to consider a major shift in strategies, including limits on how much of their reserves they would use. Indeed, we’re already starting to see how this scenario could play out as a result of dropping oil prices. For example, Exxon Mobil recently announced that it no longer considers 20 percent, or 4.5 billion barrels, of its proved oil reserves to be extractable. This reduction applies mostly to the company’s oil sand deposits in Canada, which are expensive to extract and use, and therefore particularly sensitive to dips in oil prices. The write-down is possibly the largest single-company revision in the history of the industry. This example suggests what governments could accomplish leveraging market forces to achieve their climate policies.

By reporting potential emissions, a company would acknowledge its contribution to the carbon budget and implicitly show that it is preparing to respond to policies and market signals for a low-carbon future, such as a price on carbon pollution.

The demand is there—and now with the new reporting framework released today, companies have the resources to act. It’s now up to companies to step up and start disclosing their potential emissions as an integral part of their emissions reports.

Source: WRI. Reproduced with permission.