We have aligned our climate-related risk reporting with the four central themes of the Task Force on Climate-related Financial Disclosures (TCFD) recommendations — Governance, Strategy, Risk Management and Metrics and Targets.
The purpose of the report is to describe:
- Our climate-related risk governance from the board of directors, through executive and senior management to the implementation levels in our business units.
- How we integrate climate-related risk considerations into our corporate strategy and business unit goals.
- How we identify, assess, characterize and manage climate-related risks.
- Key metrics and targets that demonstrate our performance and progress in managing climate-related risks.
Structure of the Report
We have addressed the TCFD recommendations in order to provide better understanding of our processes and integrated decision-making. Following the TCFD recommendations leads necessarily to repetition. For example, we address the use of scenarios in the Strategy section where they inform our strategy and in Risk Management where they inform our risk assessment.
We engaged in development of the TCFD recommendations from the outset through the consultation process, our membership in IPIECA, the oil and gas industry association for environmental and social issues, and through participation in panels and workshops with key stakeholders. Senior management and, when necessary, board members also remain engaged with investors and the financial sector to share perspectives and progress on effective disclosure of climate-related risks and opportunities.
We are committed to continuing that discussion and look forward to working with the TCFD and industry to implement, build on and refine the framework over time, while protecting proprietary or commercially sensitive company information. We see the annual updating of this report as a constructive step in that process.
An important disclosure issue requiring further engagement is the use of scenario planning as a tool to characterize and disclose comparative financial risk. We believe different 2-degree Celsius scenarios that depict a wide range of future possibilities should be used to facilitate strategic planning, not as reference scenarios to compare companies. The key to scenario planning is the use of a wide-enough range so that uncertainty can be characterized, rather than trying to correctly guess specific future variables or parameters. For example, addressing market price uncertainty has led us to significantly change our portfolio, capital flexibility and cost structure over a short period of time. This illustrates how misleading it can be to compare companies based on a static view of a current portfolio that will continue to change, to a single “reference” scenario of the thousands that are possible. We believe that the thoughtful application of scenarios in strategic planning is core to a company’s ability to navigate future uncertainty and is a practical way of conveying this information in a decision-useful manner.
We welcome your feedback on our approach to scenario planning or any other content in this report. If you have comments, suggestions or questions, please send them to our Sustainable Development team at SDTeam@ConocoPhillips.com.