Both companies publish scenarios for future commodity demand in official reporting documents that paint a picture at odds with expert analysis.
They are also optimistic when compared to competitors’ forecasts.
According to ClientEarth, this suggests a risk of evidence materialising which demonstrates that the companies’ management were reckless as to the truth or accuracy of statements relating to these scenarios. Such evidence could be an internal memo, email correspondence or consultant reports.
If this happens, and investors have suffered loss as a result of relying on the statement, investors can sue.
ClientEarth Senior Lawyer Alice Garton said: “Fossil fuel majors are facing unprecedented disruption to their business models. By continuing to offer bullish forecasts, BP and Glencore could be setting themselves up for future problems.
“We wrote these letters to warn the two companies of the potential for future claims but also to encourage investors to engage with the companies and encourage them to move away from self-serving scenarios when reporting on likely future trends for their business.”
BP’s statement about its ‘base case’ being “the most likely path for energy to 2035” does not tally with several independent analyses of future oil demand – including some of BP’s industry peers. It appears in the company’s annual report.
It is not wrong for BP to include its ‘base case’ scenario in its forecasts of future demand but claiming it is the most likely could create a serious headache for the company. BP’s ‘base case’ says demand for oil and other liquids is expected to increase from 95 Mb/d in 2015 to 110 Mb/d in 2035.
In contrast, Shell’s former CFO Simon Henry has revealed that the company believes oil demand could peak between five and 15 years from now. OPEC has released forecasts which predict oil demand could peak within 15 years. Oil and gas sector experts Wood Mackenzie predict demand could peak well before 2035.
In ClientEarth’s opinion, Glencore’s annual report risks future investor action because it relies on assumptions about the future for coal markets that have been challenged by independent expert analysis and does not address significant market trends that may depress coal demand. This could provide investors with a misleading impression of the business’ future viability.
Glencore’s view is contradicted by multiple independent analyses of thermal coal markets, including the latest research from the IEA, which notes that thermal coal demand in China may have peaked. It is also contradicted by other industry participants, including Royal Dutch Shell, and Glencore’s competitor Anglo American.
“It matters to all of us”
Alice Garton added: “It matters to all of us that fossil fuel companies are realistic about the risks facing their business models. If BP and Glencore persist with bullish forecasts, and these are found to be fraudulent in the future, the only ones who will profit are the class action lawyers”.
Read also ClientEarth’s question for the BP AGM on demand forecasting.
BP replied to ClientEarth’s letter and said: “BP considers that our disclosures regarding the matters discussed in your letter are appropriate.”
Glencore replied saying: “As stated in our 2016 Annual Report and other publications, we recognise that climate change and related public policy developments are a material global issue which shall impact our business, creating both challenges as well as opportunities for the Glencore Group.”
The company went on to say that it works with policymakers on issues related to clean energy, carbon reporting and carbon pricing and that it looks forward “to ongoing dialogue with our investors and other stakeholders on this important issue.”