The oil and gas sector accounted for 26% of Canada’s total greenhouse gas emissions in 2019 and more than 7% of its national GDP. Due to the oil and gas sector’s economic and environmental significance, it has come under scrutiny in recent years with new decarbonization scenarios such as the International Energy Agency (IEA)’s Net Zero by 2050 Pathway suggesting no new investments in fossil fuel supply. In this current climate change context, with investors demanding greater transparency via initiatives such as Climate Action 100+ and the Net Zero Company Benchmark and Canada proposing a cap on oil and gas sector emissions, a key question arises: how are leading oil and gas companies responding to demand for enhanced climate change disclosure?     

To answer this question, I conducted a review of the voluntary ESG/sustainability disclosures and regulatory filings from 2016 to 2020 of the seven largest[1] oil and gas exploration and production (E&P) companies listed on the Toronto Stock Exchange. This blog post provides insights on the state of climate change disclosure among leading oil and gas companies and identifies a set of key takeaways for oil and gas sector companies looking to enhance their own climate change disclosure.

Finding #1: Canada’s largest oil and gas E&P companies are using the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) to provide transparency on their approach to climate change.

The research found that all companies in the sample aligned their 2020 climate disclosure to the TCFD recommendations, to varying degrees. As many market participants are aware, the TCFD recommendations have emerged as the investor-preferred disclosure framework for communicating information on financially material climate-related risks and opportunities. Moreover, several standard setters and regulators have announced plans to align their disclosure rules with the TCFD. For more detail on the U.S. Securities Exchange and Commission (SEC) and the Canadian Securities Administrators (CSA)’s proposed climate-related regulations, see ESG Global’s thought leadership piece A Comparative Analysis of U.S. and Canadian Climate Disclosure Proposals

Finding #2: Canada’s largest oil and gas E&P companies are leveraging SASB’s Oil & Gas Exploration & Production Sustainability Accounting Standard to identify and report on industry-specific climate-related metrics.

It was found that all companies in the sample were disclosing metrics from SASB’s Oil and Gas Exploration & Production Sustainability Accounting Standard to provide transparency on climate change performance. These include metrics such as:

  • “EM-EP-110a.1. Gross global Scope 1 emissions, percentage methane, percentage covered under emissions-limiting regulations”,
  • “EM-EP-110a.2. Amount of gross global Scope 1 emissions from: (1) flared hydrocarbons, (2) other combustion, (3) process emissions, (4) other vented emissions, and (5) fugitive emissions”, and
  • “EM- EM-EP-110a.3. Discussion of long-term and short-term strategy or plan to manage Scope 1 emissions, emissions reduction targets, and an analysis of performance against those targets”.

Finding #3: Canada’s largest oil and gas E&P companies are increasingly providing stand-alone climate change disclosure.

In recent years, many of the sample companies have provided their climate change disclosure in stand-alone climate change reports. Where stand-alone climate change reports were not issued, companies instead opted to disclose climate change information through a climate change microsite or a section in their ESG/sustainability reports.

Finding #4: There was strong integration of climate change content in regulatory filings.

In addition to climate change disclosure in voluntary climate change reports and/or ESG/sustainability reports, companies in the sample also provided climate change information in regulatory filings. Climate change content, such as discussion of climate-related risks (e.g., policy risks and transition risks), was a common element in annual reports, annual information forms and proxy statements. A few leading companies also provided information on mitigation strategies including climate-related targets, participation in climate-related industry initiatives and board and/or management-level accountability of climate change within the company.

Finding #5: While Canada’s largest oil and gas E&P companies provided disclosure on how they are preparing for the energy transition, there was a lack of disclosure on capital expenditures related to climate change.

The disclosure review found that companies in the sample provided disclosure on how they are preparing for the transition to a low carbon economy. This included information on emission reduction targets, shifting to production of less carbon-intensive fossil fuels and the use of tools such as climate scenario analysis. However, disclosure generally lacked detail on how climate change impacted financial planning and capital expenditures. For example, there was little information on companies’ investments in low carbon assets and/or allocation of capital to mitigate risks or capture opportunities associated with the energy transition.

Key Takeaways

How can oil and gas companies looking to get started on climate change disclosure leverage these findings to produce disclosure that aligns with market expectations? The following key lessons are observed:

  1. Consider aligning climate change disclosure with the TCFD recommendations – To keep up with peer and industry best practices, as well as emerging regulation mandating TCFD-aligned disclosure, companies looking to disclose climate-related information should do so in alignment with the TCFD recommendations. Often, companies will take a phased approach to implementing TCFD’s 11 recommended disclosures, starting with the Governance and Risk Management categories which are recommended for disclosure by all companies regardless of materiality. Companies getting started on climate change disclosure should review the following TCFD reports for additional guidance: Recommendations of the Task Force on Climate-related Financial Disclosures and Implementing the Recommendations of the Task Force on Climate-related Financial Disclosures.  
  2. Leverage industry-specific SASB Standards to identify climate-related metrics for disclosure – The SASB Standards are a good starting point for oil and gas companies to identify industry-specific climate-related metrics to disclose on the Metrics and Targets category of the TCFD recommendations. The TCFD’s Guidance on Metrics, Targets, and Transition Plans is another good resource for companies getting started on climate change disclosure.
  3. Consider channels available for providing climate change disclosure and how to best position climate change disclosure as a part of broader ESG disclosure – To date,investors have not generally expressed a strong preference for where climate change disclosure is to be provided (e.g., as a stand-alone report, within the ESG/sustainability report, or integrated within regulatory filings). However, investors want this information to be clearly labelled and easy-to-find. A stand-alone climate change report is an effective way to achieve this objective, although companies could also consider making the climate change section of an existing ESG/sustainability report available for download separately. It should be noted in this context that if passed into law, the tabled proposals on climate disclosure from SEC/CSA will require disclosure of climate-related information in issuer financial statements and other regulatory filings. An important best practice to keep in mind is that climate change disclosure across different channels (e.g., voluntary reporting, website, regulatory filings) should be consistent.

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This blog post shares some key findings from my final paper for my Master’s in Science in Sustainability Management at the University of Toronto. These findings have been corroborated by the hands-on experience I have gained working on ESG reports for oil and gas sector clients at ESG Global Advisors.

[1] By Market Cap ($CAD) as of August 31, 2021. Data from August 2021 edition of the TSX data repository titled “Energy Issuers’, which is a publicly available Microsoft Excel Datasheet.