Climate change is a significant global issue that poses the challenge of meeting growing energy demands while ensuring supply is sustainable and affordable. No single sector or technology can tackle this complex issue alone. It requires a coordinated approach by companies, governments and communities.
We believe that all energy sources have a role to play in meeting global energy demand, and each has its own positives and challenges. The consensus of multiple scenarios is that oil and gas will continue to have a major role to play, and that natural gas will be pivotal in the transition to a low-emission energy system.
We support efforts to move towards implementing an effective global climate agreement and advocate for governments to establish a clear, stable policy framework that supports a global warming trajectory of 2°C. This will help the energy industry make informed decisions and effective and meaningful contributions to address climate change. Market mechanisms such as an emissions trading scheme or other carbon-pricing mechanism are an efficient response, and we support these and other measures that improve certainty.
We released our Climate Change Resilience Report which is aligned with the recommendations of the Financial Stability Board’s Task Force on Climate-Related Financial Disclosures (TFCD). We have provided a TCFD reference guide at the back of the Report and will continue to evolve our disclosures as we consult with our stakeholders.
As an oil and gas company, we recognise it is impossible to decouple climate change from our Corporate Strategy: the two must be fully integrated.
Oil Search’s Corporate Strategy is focused on having a globally competitive energy portfolio that is sustainable over the long term. The Corporate Strategy is refreshed periodically via our integrated planning framework process, which produces updated Strategic Objectives approximately every three years.
Reflecting on climate risks, global climate policy trends and the climate scenario analysis has reinforced Oil Search’s Corporate Strategy of focusing on a globally competitive energy portfolio that is sustainable over the long term.
The Climate Change Strategy is consistent with our Climate Policy and aligns with our Social Responsibility Policy and strategies. It helps to ensure the Company is prepared for future carbon constraints and that we understand the potential risks and impacts to our business.
We designed our Climate Change Strategy to operationalise our corporate climate commitments to embed climate risk into our decision-making, strategy development and risk management practices.
Given rapidly changing stakeholder expectations and changes to technology and government policies, we expect our Climate Change Strategy to continue to evolve and to be regularly updated.
|How our Climate Change Strategy aligns with Corporate Objectives|
|Reduce Risk||Enhance Value||Responsible Operator|
|Internal carbon price for investment and design decisions||Embed findings of climate scenario analysis into Corporate Strategy||Assist PNG to meet its climate and development objectives|
|Incorporate climate risk into strategy and decision-making processes||Include climate performance Key Performance Indicators as a component in management Short Term Incentives||Reduce emission intensity of our portfolio|
|Conduct physical climate risk assessments||Investigate renewable power opportunities in PNG||Support host government efforts to establish policy frameworks for 2°C|
The Climate Change Resilience Report provides detailed information on how this strategy is operationalised including climate metrics and targets, climate adaptation impacts, how we assist PNG meet its climate development objectives and our engagement on climate policy. The Report also includes detailed climate scenario analysis, which indicates long-term resilience and continued economic value generation for Oil Search in a range of decarbonisation scenarios, including a 2oC pathway.
The Oil Search Board overseas our climate risk management and its potential to influence and inform our Corporate Strategy and decision-making. Our Board HSS Committee oversees the Company’s strategies, processes and performance relating to health, safety, security and social responsibility, including climate change. The Board HSS Committee endorses our Climate Change Strategy and governs the management of the risks and opportunities posed by climate change to our assets.
The Executive Leadership Team (ELT) establishes the structures, reporting lines, and responsibilities to oversee the management of our key risks, including climate change. Oil Search’s business units are accountable for managing these risks.
ELT members are financially incentivised to manage longer-term risks that could impact on the value of the Company, including climate risk, through the at-risk component of executive remuneration. From 2018, a component of the short-term incentive (STI) scheme will be linked to the use of our internal carbon price.
Executives also participate in a long-term incentive (LTI) plan, with payments linked to the relative shareholder returns generated by the Company compared to a global peer group of oil and gas companies and to the 50 largest companies listed on the Australian Securities Exchange. Failure to effectively address climate risk would be expected to translate into relative under-performance in terms of creating long-term, sustainable shareholder value and impact on LTI benefits.
Climate risks and opportunities
Oil Search’s corporate risk management process aims to ensure we have appropriate strategies for managing key risks to our objectives. Climate risks are assessed at least quarterly as part of our corporate risk management process and reviewed annually during the broader strategic planning and any decision-making processes. We regularly monitor and assess transitional climate risks and broader societal trends and issues through our scenario analysis and strategy planning processes. Climate risks are also assessed during the Company’s regular Board-led strategic reviews.
Our material corporate climate risks and controls include:
|Risk type||Risk description||Time horizon||Controls|
|Transition risk||Changes in demand for our products due to emission reduction policies or technological changes.||Long-term||Climate scenario analysis|
|Operating costs||Increase in operating costs of our long-life assets due to carbon pricing policies or other market mechanisms or regulations.||Medium and long-term||Internal carbon price|
|Reputation risk||Reputational impacts, driven by stakeholder activism and increasing societal expectations that negatively impact our social licence to operate.||Short, medium and long-term|
Enhanced disclosure in line with TCFD recommendations.
Monitoring of changing expectations
|Physical risk||Physical impact of climate on our assets and on the communities where we operate.||Long-term||Physical climate risk assessment|
Detailed discussion of the Company’s climate risks and opportunities can be found in the Oil Search Climate Change Resilience Report. A summary of this information can be found on our Climate Change Fact Sheet.