Climate change talks, but oil & gas industry's not listening

Most oil and gas companies are no longer denying the existence of climate change, but they’re doing little to prepare for it, which could have major implications for the energy industry … and everyone who relies on it.

According to a new report from Acclimatise that’s backed by IBM, more than three quarters of the world’s oil and gas companies surveyed believe inevitable climate change could impact their business. Only 19 per cent, though, are taking action, the report finds.

“It is difficult to justify the position taken by any company that fails to assess the vulnerability of existing and future assets to acute and chronic changing climatic risks, given the information we now have,” said John Firth, CEO and co-founder of Acclimatise, which specialises in climate change adaptation. “Companies that develop an integrated approach, recognising that we no longer have a stable climate, will be the winners. This is not merely an environmental issue, it is about bottom-line consequences and the future viability of oil and gas companies.”

The report, “Global Oil & Gas – The Adaptation Challenge,” is based on the Carbon Disclosure Project’s annual request for investor information that was sent to the world’s largest 128 oil and gas companies globally. It identifies the top five impacts of climate change and the implications for the oil and gas industry:

• Increased pressure on water resources: Concerns over changing rainfall patterns, water shortages, poor water quality, drought and flooding is significantly increasing the demand for water. Growing competition for available resources could create problems for companies that rely heavily on water for oil and gas production. The demand could also create conflicts with local communities and other water users throughout the world. Nearly all the companies surveyed did not appear to recognise the risk landscape is changing: only 6 per cent reported knowledge of potential civil and geopolitical risks and 3 per cent identified adverse risks for local communities.
• Physical asset failure: Many existing plants and equipment have been designed for the existing climate and might not withstand changing environmental conditions. Fluctuating temperatures can affect efficiency and equipment performance, leading to transport disruption, damaged buildings and increased operational delays and costs. Only 6 per cent of respondents indicated they were taking actions to manage disruptions to off-site utilities for energy, communications, water and waste treatment.
• Employee health and safety risks: Volatile working conditions in extreme environments and physical assets that aren’t suitable for a changing climate could impact the health and safety of employees. However, only 1.5 per cent of respondents said they had incorporated climate change considerations into their health and safety risk assessments. Employer and public liability insurance coverage could be compromised if companies fail to take climate change into account during health and safety risk assessments.
• Drop in value of financial assets: To meet the growing demand for energy, oil and gas companies need to continue securing investment for new exploration, production and manufacturing. Potential investors and stakeholders are placing greater importance on the business impacts of climate change as the risks impact cost and revenue drivers. Insurance costs could potentially rise because of greater chances of physical plant damage due to weather events, an issue recognised by only 10 per cent of respondents. The current reported value of proved reserves may also be affected by companies failing to take into account the full impact of climate change. This could result in changes to the disclosed value of reserves, which has major financial implications.
• Damage to corporate reputation: As knowledge and awareness of climate change grows, any failure to monitor and report the impacts of climate change on social and ecological resources is increasingly likely to harm a company’s reputation, the report finds. Contractual relationships that do not adequately foresee and manage risks driven by climate change could damage a company’s reputation with stakeholders as the risk of parties turning to litigation increases.

“The Oil and Gas industry is an important contributor to our society and economy, so if anything impacts the industry it could well impact people at home, at work, on the move, or even their personal finances,” said Allan Roberts, industrial strategy & change leader for IBM Global Business Services, UK & Ireland. “While oil and gas companies are typically well run and have systems for monitoring risks, they have been exposed to problems with their major projects and operations in the past. Evidence in the report shows companies may not be fully appreciating the risks posed by climate change or have in place responses which are robust.”