Trends, Impacts, and Management

Transcription

1 Climate Change Trends, Impacts, and Management

2 Introduction Whether we agree with the science of Global Climate Change or not, the issues surrounding it and the role of the corporation deserves your attention. Now! If for no other reason, Climate Change will have serious implications on how we business is conducted, and should be managed like any other strategic asset or liability on the corporation s balance sheet.

3 Industry Mega-Trends Within the next decade, the oil and gas industry will have to contend with two major issues: 1. Constrained access to oil and gas reserves Physical constraint of increasing remote points of production Shift of production into less stable regions Production in more sensitive areas previously off-limits 2. The business impacts posed by climate change Both of these will significantly shape how business is conducted.

4 C-Suite Perspectives McKinsey 2006 Global Executive Survey on Top Business Trends (n = 4,238) The role of business in society? Generate high returns to investors but in balance with contribution to the broader public good investors but in 84% 16% Focus solely on providing the highest possible returns to investors while obeying all laws and regulations A dramatic shift From pure capitalistic (e.g., M. Friedman s the business of business is business) To a capitalistic but in a context to social issues

5 C-Suite Perspectives, cont. McKinsey 2006 Global Executive Survey on Top Business Trends (n = 4,238) Impacts to shareholder value (Next 5-yr) Job loss or offshoring 41% Political influences 29% Envir. issues, including climate change 28% Pension and retirement benefits 28% Privacy and data security 26% Health care benefits 23% Opposition to FDI and freer trade 18% The relative importance of Climate Change in impacting shareholder value is comparable with political risks, benefit expenditures, and privacy/data security, according to the survey.

6 US Climate Change Policy Trends 195 * Number of Congressional Proposals th 106th 107th 108th 109th 110th US Congressional Session Although the US has not adopted the Kyoto, it is developing national policies to govern Climate Change in the areas of emissions limits, emissions reporting, carbon tax, and reduction incentives, among others. Source: Congress Index of Proposals and Pew Center on Global Climate Change. * 110 th session ( ) as of 03/08

7 Business Impacts/Opportunities Negative Impacts: Impacts Regulatory resulting from a tightening of national and international policy to reduce GHG emission Competitive GHG regulation will create market winners and losers Adoption resulting from potential additional operating expenditures, compliance requirements, and/or carbon caps Reputation Increasingly, shareholders and financial investors are acting on or forcing corporations to act on climate change

8 Economic Impacts The economic implications of climate change will transform the global economy. Implications include: Adaptation Costs Compliance and technology expenditure to limit emissions Increased Operating Costs Increased premiums on insurance and financial lending Uncertainty in Carbon Constraint and Trading Mechanisms With or without US adoption of Kyoto, global market forces will impact US E&P companies through transmitted pricing and direct impact of int l assets Substitution Trends greater shift from coal and crude to natural gas. Potential upside opportunity for companies with significant natural gas assets

9 Shareholder Activisms On March 2008, investors announced 54 Climate Change-related shareholder resolutions filed against US companies. The resolutions sought companies to: Publish quantitative emissions data (historical and current) Develop corporate strategies and actions Establish quantitative reduction goals Disclose readiness for regulatory change Change operations (e.g., Citigroup to stop financing mining operations and coal plant projects that emit CO2) Source: CERES Press Release on March 8, Investors File Record Number of Global Warming Resolutions with U.S. Companies. Link.

10 Business Impacts/Opportunities Opportunities: Opportunities Bottom-Line resulting from proactive management of risk and potential impacts Policies Leaders earn the right to impact how legislation is formed Operational Efficiency efficiency through asset efficiency improvement and emissions reduction initiatives Positioning Leveraging competitive positioning and performance

11 How companies will be affected? The degree of exposure (positive and negative) to Climate Change will depend upon the several factors: Asset Profile (Oil/Gas Mix) Oil assets will be more affected by climate change regulations than natural gas assets and substitutionary trends Up- vs. Mid- vs. Downstream Activities Depending on how tradable permit systems are established, upstream, midstream and downstream assets could be affected very differently Emission Profile, Corporate Position, and Management Planning Proactive management to minimize the current environmental footprint can significantly alter future impacts Geographical Distribution of Reserves and Sales Market Regional policy differences could lead to significant variances in operating and profitability models

12 What to do? 1. Assess Risks and Opportunities Create a climate change management team Measure, benchmark, and inventory GHG emissions Analyze physical, regulatory, and financial risk exposure Identify strategic and operational opportunities 2. Develop and Implement an Action Plan Develop corporate policies and procedures Establish reduction goals, timeframe, and action plans Set efficiency goals, technologies, and offsets 3. Communication and Stakeholder Engagement Publically disclose assessments and the implementation plans Engage stakeholders, shareholders, and interest groups for feedback Source: CERES Corporate Toolkit, January 2006

13 About Ecocion Increasingly, environmental governance, risk, and compliance (GRC) performance is a business objective, driven by pressures from stakeholders, investors, regulators, industry peers, and management. In spite of the growing attention and exposure, GRC efforts and outcomes are not always transparent, practical, or measurable. At Ecocion, we help companies better manage environmental GRC by leveraging technology to accomplish two key things: Rational decision making Drive performance Learn more about our solutions and services at ecocion.com.