Managing Sustainable Development Risks
Our governance structure provides board and management oversight of our risk processes and mitigation plans. Our management system approach to identifying, assessing and managing sustainable development (SD) risks aligns 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.
Assessing and Managing Risks
Our Risk Management Standard mandates a process for operated assets and projects to assess and manage risks to ensure corporate oversight, assurance and consistent implementation. Risks are identified and evaluated 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 severity, we consider potential impacts on employee and public safety, sociocultural and economic impacts to stakeholders, environmental impacts, and reputational and financial implications. Risks identified as significant or high at the corporate or BU level are included in the corporate SD Risk Register. The company reviews risks annually and updates the SD Risk Register and associated action plans. Regular audits are scheduled in each business unit.
The standard further mandates action plans for mitigating risks ranked significant or high and tracking in the corporate SD Risk Register. Risks that are no longer ranked significant or high due to the effectiveness of mitigation actions, as well as risks that are identified as medium are tracked at the corporate and business unit level.
Read more about our management process for climate, nature, and social risks.
Action Plans
The SD Risk Management Standard requires an assessment of potential sustainability risks associated with company activities. Significant and high risks are documented in a corporate register with mitigation actions identified. Risks and mitigating actions are assessed at minimum annually by the business units and corporate. The SD Risk Register and action plans are used to guide goal setting and track performance. Read more about Performance and Compensation.
Action plans are managed at the BU level. Overarching risk management actions, such as greenhouse gas (GHG) target setting, prioritization of global emissions abatement projects and disclosure and reporting, are managed at the corporate level.
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 regular 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 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 management to understand our future environmental footprint. Environmental and social risk mitigations, such as emissions 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. Having a geographically diverse portfolio helps mitigate the risk of community or stakeholder concerns 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. Investing in local conservation initiatives allows us to mitigate some nature risks and impacts. 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 supports our policies and principles and is based on mandatory and auditable corporate standards, practices 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.
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 SD risks and liabilities are clearly identified, understood and documented. This due diligence standard applies to ConocoPhillips and its 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 assessment of climate, water, biodiversity and social risk for investment approval.
In managing our day-to-day operations, the HSE management system standard 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. This 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.
Corporate Environmental and Social Standards, Practices and Guidelines*
*Unless noted, standards and practices apply to ConocoPhillips and its subsidiaries globally, including all affiliated companies and joint ventures.