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Energy-sector ESG accounting framework still work in progress

Feedback from the energy and utility sectors on a proposed sustainable accounting framework is providing institutional investors with key guidance as they pursue better disclosure of potential risks across carbon-intensive industries.

Speaking at a stakeholder summit in New York on March 9, board members and advisers to the Sustainability Accounting Standards Board, or SASB, presented feedback received from industry stakeholders and investors in the energy, utility and infrastructure sectors. The event represented one more step in a broader effort to standardize accounting for individual industries to address environmental, social and governance factors.

Among the companies that submitted comments to SASB were Chevron Corp., ConocoPhillips, Duke Energy Corp., NRG Energy Inc. and Sempra Energy, with key investors including California Public Employees' Retirement System, New York State Office of the State Comptroller and Wells Fargo Asset Management Corp.

Hydrocarbon reserves

Key topics SASB discussed included its plans to standardize disclosure metrics accounting for hydrocarbon reserves and associated capital expenditure budgets within the oil and gas exploration and production industry and, to a lesser extent, coal production. In its provisional framework, SASB noted that E&P companies would be asked to consider the long-term prospect of carbon pricing on the value of their reserves, using the International Energy Agency's annual "World Energy Outlook" as a comparable benchmark.

However, some corporations view the use of the IEA outlook as potentially inconsistent with their individual views on energy markets and insufficient to fully express their strategic outlook. Exxon Mobil Corp. recently laid out its low-carbon energy outlook, which was premised on the averaging of several external outlooks, along with its own proprietary views. BP PLC and Royal Dutch Shell PLC also issue their own annual energy outlook, which includes unique low-carbon sensitivities.

"There's a diverse range of views among industry participants in terms of how the future is going to play out," SASB Deputy Director of Research David Parham said. "That's one of the key challenges we have in terms of how we design a standard to reflect those views and produce comparable data."

To simplify, SASB will look to align its energy sector focus with the Task Force on Climate-related Financial Disclosures based on stakeholder feedback. Such measures would potentially allow companies to offer their unique scenario analyses consistent with the TCFD parameters, which would be more consistent with each company's strategic outlook.

Utility affordability

For regulated utilities, SASB said stakeholder feedback from the sector points to wider interest in disclosures related to customer affordability and regulatory relations at the state level, signaling a slight departure from traditional environmental concerns related to air pollution, conservation and energy efficiency.

"There was strong support for the topic itself," said Bryan Esterly, deputy director for research on infrastructure, pointing to the affordability and regulatory disclosure provisions.

Based on investor feedback, SASB was encouraged to consider rate levels within a given utility's territory and how that intersects with local socioeconomic conditions as a means to finding a benchmark comparison among utilities. Utilities responded that such metrics would not account for activities beyond their control such as renewable portfolio standards or extreme weather. Additional feedback pointed to support from investors on disclosure of greenhouse gas management programs, including indirect upstream emissions from fuel sources, methane emissions and biogenic emissions.

SASB plans to reconvene its board and stakeholders in July for the ratification of its standards.

S&P Global Inc., the parent company of S&P Global Market Intelligence, is a signatory of the Task Force on Climate-related Financial Disclosures.