Today at COP28, the World Business Council for Sustainable Development (WBCSD) released the CEO Guide to the Climate-related Corporate Performance and Accountability System, or CPAS in short, with a view to sharpen corporate carbon performance and accountability. As a proof point to CPAS in action and in anticipation of the ISSB[1] Sustainability Standards, the European Sustainability Standards (ESRS) and emerging regulations in several jurisdictions, WBCSD and oil and gas members took on the challenge in 2023 to gather best practices which will enhance corporate transparency. We focused on a vital corporate aspect: how to quantify and disclose climate-related financial impacts in the face of significant transitioning uncertainty. This is important for investors and for companies: investors increasingly seek a better understanding of how climate risks affect the oil and gas sector, and companies need to align corporate carbon performance and financial planning to meet net zero emission targets. To achieve this, WBCSD will publish a TCFD[2]/ISSB/ESRS implementation guide after COP28 to prepare companies for the application of the ISSB standards and mandatory regulatory requirements, e.g., as issued by the European Union (EU) in 2023.
Many oil and gas companies and petroleum exporting countries strive to transition to net-zero emissions and diversify their economies. But the financial stakes are high – estimates[3] put the current global market capitalization of the oil and gas sector at about USD $6.5 trillion, which is equivalent to the combined gross domestic product of the United Kingdom (UK) and France in 2022. As the oil and gas industry transitions, this value will change, and greater transparency on how this might occur is crucial to investors. Why? Through government support and incentives such as the Inflation Reduction Act in the United States of America (USA) and the European Green Deal, investors are increasingly able to marshal the energy investments necessary for an orderly energy transition to a net-zero economy with an expectation for a reasonable rate of return.
Over the last few years, WBCSD has guided energy system players on how to implement the financial and non-financial reporting recommendations provided by TCFD. Despite the remarkable progress made by companies in climate-related reporting, the ask from investors and regulators for more granular and transparent disclosures continues to grow. And our member companies are listening and acting. In anticipation of mandatory disclosure requirements in some countries, WBCSD continued its multi-year work in 2023 by collating input and sharing best practices from leading oil and gas companies. Our work bridges the gap between TCFD reporting principles and the financial information needs of investors by providing detailed how-to guidance to oil and gas companies looking to take the next step in quantifying climate-related financial impacts to improve carbon performance and accountability. We expect our guide to be of value to finance, accounting, investor relations and corporate reporting professionals in publicly listed and national oil and gas companies, as well as leading professionals in standard setting and regulatory organizations.
In the upcoming guide, we go beyond the TCFD recommendations and build on the recently issued ISSB[3] Climate-related Disclosure Standard and ESRS E1- Climate Change Standard to guide oil and gas companies in assessing climate change impacts using current and forward-looking financial metrics. We also reflect on what regulators and industry watch group are telling companies: while there are good examples of comprehensive climate-related reporting by some companies, many industry players are not disclosing enough on how physical and transition climate risks are expected to impact them financially. Our work on the metrics for quantification of financial position and performance paints a clearer picture for investors and allows them to evaluate an oil and gas company’s financial progress through the energy transition.
Our experts are also reviewing the emerging mandatory disclosure requirements in key jurisdictions such as the EU, UK and USA, to help companies navigate the expanding list of climate-related financial reporting requirements. Growing disclosure demands require greater international alignment on reporting requirements. This alleviates the reporting effort for companies by jurisdiction and provides a level-playing field for the industry and investors, which will accelerate how the world collectively tackles the climate crisis and builds a sustainable economy.
Together with our members, we hope that the deliberations at COP28 and our how-to guide will inspire national oil companies to follow the lead of those many international oil companies that are spearheading financial transparency. Quantifying the climate-related financial impacts helps corporate management as well as investors in seeing the path towards an orderly, financially prudent transition to net zero.
Be the first to receive the upcoming TCFD/ISSB/ESRS implementation guide upon its publication by signing up here.
[1] International Sustainability Standards Board[2] Task Force on Climate-Related Disclosures[3] Companiesmarketcap.com (2023). Largest oil and gas companies by market cap. Retrieved from: https://companiesmarketcap.com/oil-gas/largest-oil-and-gas-companies-by-market-cap/.
