As described in the Risk Management section, we evaluate and track our climate-related risk through our SD Risk Register and Climate Change Action Plan. Those risks broadly fall into four categories: 

• GHG-related policy.
• Emissions reductions and emissions management.
• Physical climate-related impacts.
• Climate-related disclosure and reporting. 

The time horizons we use for climate-related issues are based on the time we expect it will take for the risks to manifest, our planning time horizons and the time required to realize the majority of the net present value of our projects.

Near-Term Risks

Our near-term time horizon is one to five years, during which we can complete short-cycle drilling campaigns and small projects. Our GHG forecasting and financial planning processes are used to determine risks and opportunities that could have a material financial impact for that period. Our near-term climate-related risks are generally government policy related and managed at the business unit level through policy advocacy and technology to reduce emissions. 

Regulations to address climate-related risk, including GHG emissions, are a near-term risk for several of our businesses. For example, regulations issued by the Alberta government under the Emissions Management and Climate Resilience Act require any facility existing in 2016, with emissions equal to or greater than 100,000 metric tons of carbon dioxide or equivalent per year, to reduce its net emissions intensity, with reduction increases over time. The cost of compliance and investment in emissions intensity reduction technologies influence investment decisions for the Canada business unit, where we are purchasing carbon offsets while evaluating and developing technology opportunities such as CCS and subsurface technology to reduce emissions for existing and new facilities. Good examples of technology developments that decrease GHG emissions intensity are our commercialization of non-condensable gas co-injection at our oil sands operations which improves our steam-to-oil ratios by 20-30%, the deployment of wellbore technology such as flow control devices and multilateral wells which improve steam-to-oil ratios by 10-20%, and the piloting of steam additives which has the potential for a 20% improvement to our steam-to-oil ratio. 

GHG emissions costs, or carbon costs, are another near-term risk in some jurisdictions where we operate. For example, in Norway, we are managing carbon cost risk with specific actions to study both operational emissions reduction opportunities as well as technical modification opportunities and evaluate project economics that include the Norwegian carbon fee and European Union CO2 emissions costs (EU ETS). 

Another policy area we monitor is related to border carbon adjustments (BCAs). For example, the EU Carbon Border Adjustment Mechanism (CBAM) seeks to put a price on carbon for carbon-intensive traded goods. The transition phase for the CBAM will begin in October 2023, during which importers will begin reporting emissions data to the EU. While oil and gas production is currently outside the scope of CBAM, a review of industries to consider including in the future is due at the end of the transition phase in 2025. We continue to monitor the applicability of CBAM and other border carbon adjustment proposals to our oil and gas operations. We are engaged in discussions around additional policy options, such as a standalone World Trade Organization-compliant Border Carbon Adjustment (BCA) mechanism. We will continue working with the CLC and our trade associations to identify opportunities to support and shape policies in alignment with our carbon pricing principles. 

Medium-Term Risks

Our medium-term time horizon is six to 10 years, during which we can complete most major projects and revise our portfolio if required. Our GHG forecasting and financial planning processes are used to determine the risks and opportunities that could have a material financial impact for that period. Medium-term risks take longer to impact our business and may include emerging policy that is not yet fully defined. These risks are managed by business unit planning but, if significant, may also be managed by corporate strategies and company-wide risk assessments. 

Offset requirements have been identified as both a medium-term risk and as an opportunity for some business units where carbon offsets can be used for compliance with an emissions reduction program. 

Climate-related physical changes are a medium-term risk for some of our operations. In Alaska, mitigation measures include pre-packing snow to accelerate the start of the ice road season and engineering and maintaining gravel roads and pads to be protective of underlying permafrost.     

Another medium-term risk is access to capital markets. Increasing attention to global climate change has resulted in pressure from and on stockholders, financial institutions and other market participants to modify their relationships with oil and gas companies and to limit or discontinue investments, insurance and funding to such companies. For example, a significant number of financial institutions are now members of the Glasgow Financial Alliance for Net Zero (GFANZ), thereby voluntarily pledging to achieve net-zero emissions by 2050 on Scope 1, 2 and 3 emissions, as well as setting interim targets for 2030 or earlier. While GFANZ members are not prohibited from having relationships with oil and gas companies, the nature of their target commitments may imply that greater restrictions will be placed on GFANZ members in the future. Conversely, we also face pressure from some in the investment community and certain public interest groups to limit the focus on ESG in our decision-making. If public pressure continues to mount, our access to capital on terms we find favorable may be limited, and our costs may increase. Additionally, our reputation could be damaged, and our business and results of operations may be otherwise adversely affected. 

Long-Term Risks

Our long-term time horizon is 11 years and beyond. Generally, long-term risks are managed by our scenario analysis and Climate Risk Strategy, as they include long-term government policy, technology trends and consumer preferences that affect supply and demand. They may also include risks that align with long-term physical climate scenarios. 

We recognize that our GHG intensity will be compared against peers, so we track this as a competitive risk at the corporate level. Investors, the financial sector and other stakeholders compare companies based on climate-related performance, and GHG intensity is a key indicator. For this reason, our GHG intensity target aligns with the long-term time horizon to ensure we manage the risk appropriately. It also demonstrates our goal to be a leader in managing climate-related risk. 

Both chronic and acute physical climate risks are a long-term risk for our business. In some parts of the U.S., we have identified potential storm severity as a risk for future operations, based on previous storms and flooding. Consensus science suggests that future extreme weather events may become more intense and/or more frequent, thus potentially adding incremental risk to our operations in coastal regions and areas susceptible to typhoons or hurricanes. We have a crisis management system in place to manage that risk before, during and after a storm event. 

Read more about our Risk Register and Climate Change Action Plan.