Managing Climate-Related Risks
Our climate-related risk management process is designed to drive appropriate action for adapting to a range of possible future scenarios. Through integrated planning and decision-making, we develop mitigation plans for climate-related risk, track performance against our goals and adjust our plans as we learn and conditions evolve.
Local risks and opportunities related to our operations and projects are assessed and managed at the BU level, enabling tailored business goals to address the challenges and opportunities unique to each region’s operations. Reporting and overarching climate-related risks, such as GHG target-setting and prioritization of global emissions-abatement projects, are managed at the corporate level.
The diagram below shows a simplified process flow of our climate-related risk management process.
Our corporate strategy and the embedded Climate-Related Risk Strategy are informed by the output of our corporate scenarios and the risk management system. Examples of impacts on our corporate strategy include:
- Reducing the sustaining price of the company — the equivalent oil price at which we can sustain production and pay our dividend.
- Lowering the cost of supply to manage market risk.
- Maintaining a diversified portfolio of projects and opportunities.
- Diversifying our portfolio to include assets with lower decline rates and low capital intensity to drive higher free cash flow yields.
- Developing technologies that reduce both costs and emissions.
- Monitoring alternative energy technologies.
The objective of our Climate-Related Risk Strategy is to manage climate-related risk, optimize opportunities and equip the company to respond to changes in key uncertainties, including government policies around the world, technologies for emissions reduction, alternative energy technologies and changes in consumer trends. The strategy sets out our choices around portfolio composition, emissions reductions, targets and incentives, emissions-related technology development, and our climate-related policy and finance sector engagement.
In 2017, in accordance with our strategy, we set a public long-term GHG emissions target based on the architecture of the Paris Agreement, with an aspiration to become a leader in GHG climate-related risk management.
The ConocoPhillips Long-Range Plan provides the data that underlies our corporate strategy and enables us to test our portfolio of projects against our climate-related risk scenarios, and thus make better-informed strategic decisions.
We use a marginal abatement cost curve (MACC) process to collect potential GHG emissions reduction projects from our business units, prioritize them based on their cost and reduction volume, and implement the most cost-effective projects. As a result of our focus on emissions reductions, we have completed the installation of non-condensable gas co-injection in the Canadian oil sands to enhance production while reducing energy consumption and emissions. In the U.S. Lower 48, we have changed the design of some new facilities to include instrument air packages rather than gas-driven devices, reducing methane emissions from those sites. To continue those reductions, we have set up regional teams in North America, Australia, Southeast Asia and Europe to use the MACC process to identify additional energy efficiency projects. Output from the MACC informs our annual budget, Long-Range Plan and technology strategy.
SD Risk Management Process and Climate Change Action Plan
The SD risk management process ensures that a Climate Change Action Plan is developed to track mitigation activities for each climate-related risk included in the corporate SD Risk Register. This plan includes details about our commitments, related responsibilities, resources and milestones. As part of annual updates to the register, the action plan and its effectiveness are evaluated, and decisions are made to continue mitigation measures, add new measures, or simply monitor the risk for further developments. The table below lists our key SD risk management processes, their scope and purpose.
|Risk Management Process||Scope||Description|
|Corporate strategy||Corporate/portfolio||Defines the company’s direction for exploration and development, including portfolio, capital allocation and cost structure.|
|Climate-related risk strategy||Corporate/portfolio||Identifies options to reduce and mitigate climate-related risks as policies, markets and technologies develop over time.|
|GHG emissions intensity target||Business units and qualifying projects||Drives actions, reviews and management of future policy and market risk.|
|Long-Range Plan||Corporate/portfolio||Forecasts key data for our corporate strategy covering our proposed portfolio development and performance, including production, costs, cash flows and emissions.|
|Marginal abatement cost curve (MACC)||Business units||Collects a list of GHG emissions-reduction projects across our business units and prioritizes them based on cost and emissions abated.|
|SD risk management process||Corporate, business units and qualifying projects||Records all SD-related risks that are prioritized as significant and high in the SD Risk Register to ensure that mitigation progress is reported and issues are managed effectively.|
|Climate Change Action Plan||Corporate, business units and qualifying projects||Records mitigation actions, milestones and progress in managing climate-related risks from the SD Risk Register.|
Read more about our Risk Register and Climate Change Action Plan.