Friends Fiduciary Urges SEC To Improve Carbon Asset Risk Disclosure By Oil And Gas Companies

Disclosing potential carbon asset risks will inform investors and potential investors of risks they may undertake when investing in businesses that extract and sell fossil fuels. “Carbon asset risks” include carbon-reducing regulation, growth of renewable energy, and weakening oil demand.  Additionally, change in climate and weather can cause physical risk to companies’ infrastructure. Some fossil fuel reserves and infrastructure are at risk of becoming stranded assets due to competition and environmental regulations.  The investors’ letter to the SEC notes that these risks constitute ‘known trends’ under SEC rules, and therefore companies must disclose them. The energy industry has made and continues to make substantial capital investments in carbon intensive projects such as Arctic Drilling, ultra-deep-water drilling, and oil sands projects. Fully disclosing risks to investors may impact the economics of the industry and result in increased scrutiny for such capital investments and the expected return on investment. The industry will likely expend more than $1 trillion on high-cost, carbon intensive exploration and development in the coming decade even though these projects assume a 30% rise in oil prices to be profitable. Investors noted that Chevron, ExxonMobil and Canadian Natural Resources failed to fully disclose carbon asset risks and asked the SEC to notify the companies in “comment letters”. These companies do not disclose carbon asset risks or do so inadequately. While FFC does not hold these oil majors, we believe that failure to disclose this information allows the industry to hide its true level of risk, stymies effective public policy towards sustainable alternatives and impedes investment capital from flowing to effective low-carbon energy production. According to Ceres, a national organization working with companies and investors around climate change, taking effective action to stop global warming will require more than $1 trillion in clean energy investments per year in the coming decades. To view the letter click here