Investors press SEC to consider carbon impact on oil reserve disclosures

F&C has this week joined forces with US and Canadian investors, environmental and non-profit groups to encourage the US Securities and Exchange Commission to request that oil and gas companies' factor in the carbon impacts of future barrels when accounting for their reserves.

The influential US regulator is currently considering new proposals for the way in which oil and gas companies report their reserves to try and create more internationally consistent standards of reporting. In particular, the technologies utilised for oil reserve estimations have evolved significantly in recent years and oil and gas companies listed in US exchanges are now far more dependent on external reserves than they were when the rules were originally drafted.

In their letter, F&C and its co-filers argue that climate change and policies being developed to reduce carbon emissions could over time render certain assets uneconomic - particularly those which require high carbon emissions as part of their extraction processes. They therefore argue that in reporting their reserves, oil and gas companies should be required to assess the carbon impact of future barrels, not just the number of barrels a company may have.

Elizabeth McGeveran, senior vice president in F&C's governance and sustainable investment team, explains: "As investors in oil and gas companies it is important for us to be able to assess the risk profile of reported reserves to factor in the costs of carbon emissions, particularly as global policy frameworks begin to change. For example, the energy consumption required to extract a barrel from Canadian tar sands is very different to a simple barrel of crude from the Gulf of Mexico. Understanding climate risk will assist investors in understanding and evaluating reserves."

"SEC regulations already require the disclosure of known trends that companies can reasonably expect will have a material impact on net sales, revenues or income from continuing operations," added McGeveran, "and we believe that the disclosure of any estimated additional risks posed by the extraction and development of additional reserves will be important."