Oil and gas firms SOCO International and Cairn Energy have stepped up their climate reporting following interventions by ClientEarth lawyers and the UK financial regulator.
SOCO’s Risk Management Report now recognises that the transition to a low carbon economy could result in reduced demand and increased operating cost, capital cost, regulation and taxation. As such, climate change risk underlies many of the Group’s principal risks.
Meanwhile Cairn’s strategic report contains much more comprehensive disclosure around climate change risk to the business. The report now acknowledges stranded assets as a likely threat and points to conflicting forecasts of oil demand. This signals major progress.
But ClientEarth lawyers are concerned that Cairn has discussed climate risk outside its main analysis of fundamental business risks.
Investors are increasingly demanding better climate risk disclosures, and are likely to expect company reporting to align with the recommendations of the task force on climate-related financial disclosures (TCFD). With the TCFD’s report being presented to the G20 in July, climate risk is likely to remain in the forefront of investors’ minds in 2017.
ClientEarth submitted a formal complaint to the Financial Reporting Council (FRC) last August, after both SOCO International and Cairn Energy allegedly failed to make adequate reference to climate risks to their business in their 2015 strategic reports, contrary to legal requirements.
And what does the FRC have to say?
Despite explicit reference by Cairn in its 2016 report to the FRC’s intervention, the regulator has yet to disclose the results of its investigation, or to provide guidance to companies clarifying that climate risk reporting is required under the law. ClientEarth has pressed the FRC to make its efforts more public.
ClientEarth CEO James Thornton said: ”Two major companies have updated their disclosure practices as a direct result of ClientEarth’s complaint to the FRC. But this intervention was behind the scenes. For us, that means the regulator needs to exert its influence more widely. The FRC needs to send a clear and public signal about climate risk reporting, or it will lose credibility in the rapidly evolving disclosure conversation.
“We look forward to hearing from the FRC regarding this investigation and its findings.”