Bloomberg BNA — The Sustainability Accounting Standards Board (SASB) released June 25 voluntary guidelines for helping companies such as ConocoPhillips and Alpha Natural Resources report on how climate change regulations and other sustainability issues could affect their value in annual filings with the Securities and Exchange Commission.
The standards identify environmental and social issues that could have a material impact on shareholder value for companies in the nonrenewable resources sector, which includes oil and gas, coal operations, metals and mining, iron and steel, and construction materials.
The sector faces “distinct risks, such as increased regulatory pressure due to carbon emissions and the need for a culture of safety and emergency preparedness,” Jean Rogers, the founder and chief executive officer of SASB, said in a statement. It also faces “unique opportunities stemming from product innovation and maintaining positive relations with key stakeholders such as communities directly affected by their activities,” she said.
SASB is a nonprofit organization that has been developing standards for improving environmental, social and governance (ESG) disclosure in mandatory SEC filings, including annual 10-K reports, by publicly listed companies in 10 sectors. The nonrenewable resources sector is the fourth set of industry standards to be released.
Value of Reserves
The standards ask companies for more disclosure on issues related to climate change, including how future regulations to limit greenhouse gas emissions could affect the value of oil, gas or coal reserves.
No more than one-third of proven fossil fuel reserves can be burned before 2050 if the world is to keep global warming below 2 degrees Celsius (3.6 degrees Fahrenheit), according to an analysis by the International Energy Agency.
Companies are already required to report to the SEC on the value of their reserves, but that is assuming current prices and technologies, Himani Phadke, associate director of research at SASB, told Bloomberg BNA June 25.
In a carbon-constrained future, she said, “Companies with more carbon-intensive reserves and production and higher capital costs are likely to face greater risks,” according to the standards.
“We're asking them to look at scenarios” for future price projections and the estimated carbon dioxide emissions embedded in proven hydrocarbon reserves, Phadke said. Companies should also discuss how price and demand for hydrocarbons or climate regulation influence their capital expenditure strategies for exploration, acquisition and development of assets, according to the standards.
The standards also seek to address other environmental issues, such as greenhouse gas emissions; air quality impacts; biodiversity impacts, including acid mine drainage and oil spills and leaks and water management, particularly for hydraulic fracturing operations.
“We're already seeing some good disclosure, in sustainability reports for example,” on many of these issues, Phadke said. Some of the environmental issues are also disclosed in 10-Ks, just not with metrics, she said.
SASB wants companies to include in their 10-Ks metrics such as total freshwater withdrawn, the percentage recycled and percentage withdrawn in regions with high or extremely high water stress.
Other social issues addressed by the standards include security, human rights and community relations, which looks at how a company's value could be affected by the way it affects a community. For example, oil and gas companies could face disruptions to operations “not from an equipment failure, but a community protest,” Phadke said.
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