Managing Sustainable Development Risks
Our governance structure provides board and management oversight of our risk processes and mitigation plans. Our integrated management system approach to identifying, assessing and managing sustainable development (SD) risks is aligned with how we make business decisions to ensure the consistent global identification and assessment of risks. This system links directly to the enterprise risk management (ERM) process, which includes an annual risk review by executive leadership and the board. These elements help us manage and mitigate risk, as well as track our SD performance.
Management System Approach to Sustainable Development Risk
In 2019, as part of our continuous improvement approach, we updated our SD Risk Management process for operated assets and projects to a standard to increase corporate oversight, assurance and consistent implementation. Risks are identified and assessed against the physical, social and political settings of our operations by subject matter experts in each business unit (BU) and project. Local concerns may influence the potential importance of these environmental and social matters, including cumulative effects. Each risk is then assessed using a matrix that evaluates both its likelihood and consequence. In evaluating the consequence level, we consider potential impacts to stakeholders and the environmental as well as reputational and financial implications for the company. Risks identified as significant or high are included in the corporate SD Risk Register. The company undertakes a review of SD risks annually and updates the SD Risk Register and associated action plans.
An audit protocol for the new standard is being developed in 2020 with a regular schedule of audits to be implemented in 2021.
The SD Risk Management Standard ensures that an action plan is developed to track mitigation activities for each priority risk included in the corporate SD Risk Register. These plans include details about our commitments, related responsibilities and milestones. As part of annual updates to the register, the action plans and their effectiveness are evaluated, and decisions are made to continue mitigation measures, add new measures or simply monitor the risk for further developments. The SD Risk Register and action plans are also used to track performance and guide goal setting. Action plan milestones will be used as a component to calculate the VCIP payout beginning with the 2020 program. Read more about Performance and Compensation.
Action plans for prioritized risks are typically managed at the BU level, along with the ongoing management of SD performance and engagement designed to minimize or avoid other social and environmental aspects of our business. Overarching risk management actions, such as GHG target setting, prioritization of global emissions-abatement projects and disclosure and reporting, are managed at the corporate level. Line-of-sight goals for business units and key functions are shown as specific action items within the action plans.
Enterprise Risk Management
Sustainability risks are integrated into the corporate Enterprise Risk Management (ERM) system. Risks from the corporate SD Risk Register are mapped to relevant enterprise risks including market, reputational, operational and political. Owners of these enterprise risks, who are ELT members or senior managers, are briefed on the risks and our mitigation activities. Enterprise risks are then presented to the Audit and Finance Committee (AFC) of the board. The AFC receives annual updates on how enterprise risk is being addressed, mitigated and managed across the company.
Long-Range Plan and Corporate Strategy
Our long-range and strategic planning activities consider sustainable development risks and mitigation. Our long-range plan (LRP) forecasts key data for our corporate strategy covering our proposed portfolio development and performance, production, costs and cash flows. We also use the LRP to forecast GHG emissions and water use to understand our future environmental footprint. Environmental and social risk mitigations, such as emission reduction projects, are reflected in the LRP and our annual budget.
Our corporate strategy defines the company’s direction for exploration and development, including portfolio, capital allocation and cost structure. Our cost of supply, portfolio diversification (both geological and geographical) and technology investments are aspects of the corporate strategy that also address sustainability risk. For example, a low cost of supply mitigates climate transition risk in lower-energy demand scenarios. A geographically diverse portfolio mitigates the risk of community opposition delaying a significant portion of our production. Investing in water treatment technology allows us to recycle produced water and decrease our reliance on local water sources. We work with company leadership through our governance structure, enterprise risk management system and energy transition models to ensure our strategy effectively manages SD risks.
Key SD Management Processes
Our integrated management system is based on mandatory and auditable corporate standards, which are supported by principles and guidelines aligned with how we make business decisions to ensure the consistent global identification and assessment of SD risks. This includes integration into key business-planning processes for the company, from business development activities and exploration to developing major capital projects and managing our day to day operations.
|SD Risk Management Standard||
|HSE Social and Due Diligence Standard||
|HSE Management System Standard||
|Capital Projects Management Standard||
|HSE Waste Management Standard||
|Global Onshore Well Management Principles||
|Guideline for Groundwater Baseline Assessment||
|Global Induced Seismicity Guideline||
We perform due diligence on acquisitions, divestitures, trades, exchanges and farm-in/farm-out agreements. This process is designed to ensure that past, present and potential HSE and sustainable development risks and liabilities are clearly identified, understood and documented. This due diligence standard applies to ConocoPhillips and global subsidiaries, and we strive to influence all affiliated companies and joint ventures to conduct due diligence before undertaking binding business transactions.
While the majority of ConocoPhillips’ oil and natural gas reserves and production are within Organization of Economic Cooperation and Development (OECD) nations, some of the world’s most resource-rich areas are in countries that pose risks associated with political instability, inadequate rule of law or corruption. Before entering a new country — or for other new developments, when warranted by the geopolitical environment — we have adopted comprehensive risk management tools to evaluate and manage these types of risks. A preliminary due diligence assessment is conducted to identify significant risks, including social, environmental and political concerns, and define how they will be managed.
As operated and non-operated projects are developed and put forward for internal approval, consideration is given to environmental and social risks and their mitigation. For qualifying projects, our management system also requires a set of deliverables for investment approval that includes:
- Climate-related risk assessment.
- Environmental, Social, Health Impact Assessment.
- Stakeholder engagement plans.
In managing our day to day operations, the HSE management system addresses operational risk and helps ensure that business activities are conducted in a safe, healthy and environmentally and socially responsible manner, aimed at preventing incidents, injuries, occupational illnesses, pollution and damage to assets. We believe incidents are preventable and that HSE considerations must be embedded into every task and business decision. We also provide guidance to address specific activities in our operations including waste management. The standard ensures all our assets have detailed plans to manage waste streams, minimize where possible, and ensure waste is directed to facilities that have been evaluated and approved by the company.