Why did we engage?
As a long-term investor in the company, which produces and trades liquefied natural gas, we wanted to understand how the organization would manage risks related to its long-life assets under a 2-degree scenario.

How did we engage?
We engaged with the company on its first report aligned with the TCFD framework to learn about its implementation process. This also provided us with the opportunity to give feedback and suggest additional disclosures that could make the report more useful.

Outcome
The company has addressed all the task force’s requirements. It has also attempted to focus on the resilience of its strategy under the International Energy Agency’s (IEA’s) Sustainable Development Scenario, which expects demand for liquefied natural gas to grow almost 80% by 2040 over 2018 levels. We believe the company is demonstrating proper oversight of supply chain risk by requiring suppliers to commit to a reduction in methane emission – on page 33 of the full report.

Next steps
While we recognize this resilience, we still advocate the company use a scenario pathway that is less conducive to demand, assess the vulnerabilities in its investment plan and develop strategies to mitigate them.

We noted that the company does not provide the metrics it uses to assess the resiliency of its assets, nor does it provide any benchmarking data to assist investors. We have also encouraged it to discuss how scenario analysis feeds into capital allocation decisions.

Why did we engage?

This petrochemical refining company is sensitive to changes in consumer and regulatory activity around climate change and therefore faces a range of associated long-term risks.

In 2019, the company published a sustainability report; in 2020, it added a section dedicated to the task force’s disclosure framework in its publication. The company provided a full response to some elements required by the task force, especially around governance and the resilience of assets to adverse climate events. It also provided some information on how it is mitigating risks to its strategy by increasing its exposure to biofuels.

However, its resilience analysis lacks any discussion of how it may be impacted under the IEA’s Sustainable Development Scenario. 

How did we engage?
We noted to management that the company provides only a description of what oil demand would look like under the above scenario. It does not discuss the impact this would have on its business or how it would take that risk into account in strategic capital allocation decisions.

Outcome
We encouraged the company to conduct this analysis and provide a discussion in its next report. 

Why did we engage?
This refining, transportation and U.S.-based vending company operates in a sector that is already being impacted by regulatory pressure to act on climate change.

How did we engage?
Since the company published its first stand-alone TCFD-aligned report, we have been engaging with it on climate-related issues as a long-term investor.

Outcome
We found the company has made remarkable progress since the first report, especially the detailed work it has produced on the IEA’s Sustainable Development Scenario, its impact on the global refining market and its resilience relative to its peers. We found this to be one of the more comprehensive discussions on resilience.

Yet we concluded a more detailed discussion on the impact on the company’s business, such as on the crude supply chain and refinery closures, the impact on enterprise value, may require disclosing competitive information, which could be problematic. We also note that while the company does not explicitly use a carbon price or discuss the absolute impact it may have on enterprise value, it effectively incorporates it in capital allocation projects by using higher hurdle rates for carbon-intensive projects.

The company has established a business-wide goal to reduce its greenhouse gas emissions per barrel of oil equivalent processed to 30% below 2014 levels by 2030. It has also linked this to its executive compensation program and certain employee programs. The company was able to link the choice of metric as well as the target level with the narrative provided in its TCFD report. It has also provided some discussion on how those targets will be achieved by expanding its energy efficiency program, reducing methane emissions and increasing the use of renewable energy.