Oil giants are failing to disclose to investors the risks posed by climate change, a new report finds

Major oil and gas companies are failing to tell investors about the full risks related to both climate change and new forms of resource development, according to a damning report from Ceres, an influential Boston-based coalition of investment and public interest groups.

The report looks at the first quarter 2011 Securities and Exchange Commission filings of 10 companies – Apache, BP, Chevron, ConocoPhillips, Eni, ExxonMobil, Marathon, Shell, Suncor and Total – and grades the quality of disclosures across issues such as deepwater drilling safety, and preparedness for climate regulation.

Of 60 climate-related disclosures, it classed only five as “good”, with 34 deemed “poor or no disclosure”. Of 50 deepwater drilling rates, it says only four were “good”, with 29 “poor or no disclosure”. None of the disclosures was rated “excellent”, meaning even the best companies could do better.

Ceres says energy companies have taken on increasingly risky projects, without updating investors of the potential liabilities. The Deepwater Horizon disaster – which cost BP $86bn when including the effect on its share price – showed the potential impact of the new types of exploration, it says.

“While companies are making extensive capital investments related to climate change and deepwater drilling that carry material financial risks, they are generally failing to adequately disclose them consistent with SEC rules and growing investor expectations,” the report says.

In fact, BP comes out better than most on deepwater disclosure. It gets “good disclosure” marks in four of five categories – though Ceres says there is still room for improvement.

“Since [Deepwater Horizon] they’ve had 86bn reasons to concentrate very intently on offshore safety, and that’s reflected in their improved disclosure,” says Andrew Logan, director of Ceres’s oil and gas programme.

“But it’s still not to a level that investors need. There is not the specificity that you need to assess whether all the things that BP are doing add up to a sound risk management strategy.”

Seven of the 10, including ConocoPhillips and Shell, provided no information about “safety R&D”; four gave nothing in the way of “safety and environmental statistics”; and two – Exxon and Suncor – disclosed zero information about their spill response preparations. BP and Total were the best performers.

Equipment at risk

On climate, the report looked at disclosures in areas including regulatory and physical risks, greenhouse gas emissions and governance. Apache and ExxonMobil scored worst overall; BP, Eni and Suncor, the best. Chevron and Exxon, for example, provided zero information on its physical risks from climate change, or its CO₂ emissions.

“The industry owns hundreds of millions of dollars of infrastructure that could be affected by climate change, whether it’s refineries at sea level that can’t be moved, offshore platforms in the path of hurricanes, or pipelines built across permafrost that is now melting. There are very real physical risks they aren’t properly disclosing,” Logan says.

Paul Bugala, sustainability analyst at Calvert Investments, a Ceres member, says environmental disclosures are one way companies can attract long-term investors, and “get off the quarterly treadmill”.

Without a US carbon tax or national cap-and-trade scheme, climate change may not represent much regulatory risk now. But it surely must in the future, according to Bugala. Either there will be a more “efficient regulatory process”, or a “catastrophic event that will lead to reactionary policies and great costs for companies with big carbon emissions”.

Bugala says: “Either of those scenarios requires a proactive approach to climate change management. The companies need to show they can transfer risk away from investors.”