Disclosing Carbon Disclosure Data is Chevron’s Way Forward in Mitigating Environmental Risk
Chevron and countless other companies are providing environmental interest groups, international government organizations, and civil society with data for improved decision making for reducing the risk companies pose to the environment.
Numerous companies have attempted to redesign their processes to adapt to climate change. However, earlier in the journey of building momentum, the Carbon Disclosure Project, a UK-based organization, sought to provide the world with information about companies and their relative environmental impact. Essentially, the work in mitigating the risks of climate change for a given company is much harder if adequate information about what the company is doing is not provided. As countries and international governmental organizations such as the United Nations start to make critical decisions about the trajectory of environmental policy and regulation, companies, like the one below, can offer meaningful data to better target emission reduction goals. In fact, literature suggests that environmental management will continue to be hampered until environmental accounting measures with meaningful data are put into place[1]. Now reporting carbon emission data is a key fixture in the Chevron supply chain of drilling for energy products (upstream) and delivering it to customers (downstream).
By signing up for this commitment, companies are then expected “not only to measure and disclose their own greenhouse gas (GHG) emissions as well as those in their broader supply chain, but also asks them questions about their climate change risks, strategies, and actions[2].” According to CDP, they now collect data and coordinate information sharing about environmental accounting for approximately 81% of the largest companies in the world. Even more, 69% of Fortune 500 companies are experiencing increased demand from consumers for lower carbon products[3].
Chevron, one of the largest energy companies, has worked intensively and closely with the CDP to better understand its environmental impact. Management has identified that the medium and short-term goals are inextricably linked to one another.
Short-Term Actions
In the shorter term, Chevron has committed to become more aggressive in their reporting in partnership with the CDP. Chevron like many energy companies is comprised of inordinately sized capital projects. With the help and direction of the CDP, Chevron now does the following:
- Estimate a (capital) project’s incremental emissions profile
- Assess the potential financial impact of GHG regulations
- Examine the emissions reduction options[4]
This according to the company has enabled transparency internally and externally—allowing them now to pinpoint the source of their carbon disclosures and associated pricing. Management has now determined that the “primary sources of our GHG emissions are combustion of fuels and, in some locations, flaring and venting of the natural gas (methane) that is extracted along with crude oil[5].” Due to their partnership with CDP, Chevron can now state that in 2016, they produced 66 million tons of CO2 equivalent[6] .
Medium-Term Actions
Now in consideration of the medium term, Chevron has now begun to engage intendent auditing groups to provide more substantive review of Chevron’s work. They contracted the services of Ernst & Young to more thoroughly review the inventory that Chevron held in GHG emissions. To solidify their work for the longer term, they’ve used this information both from EY and CDP to implement technological and process based innovations to more precisely minimize their production of GHG emissions without harming the financial viability of the company. First, they’ve reformed the work of the inspections team to devise formal programs to inspect facilities for leaks. Second, Chevron now more efficiently tracks “fugitive emissions” by installing cameras embedded into machinery to identify more precisely leaks[7].
In a fairly robust analysis of what industry players have done with the CDP and subsequent actions they have taken, author Marc Epstein identifies that there are three classifications of subsequent actions:
- Opportunities directly related to core operations
- Opportunities not directly related to core operations
- Operations that cannot be unambiguously classified
Chevron references the significant gains it has made in reducing GHG emissions in partnership with CDP and internal operations as a function of existing core operation improvements. Given Chevron’s immense size and scope, Chevron should also pursue option 2 above. For example, Chevron’s analysis of its ongoing investment in India and Nigeria requires more significant investment in infrastructure[8]. Subsequently, Chevron should measure and mitigate the environmental risk associated with those infrastructural developments.
Chevron’s alignment with sustained involvement with CDP practices is still debatable. For the moment, CPD’s practices have unlocked opportunity for companies like Chevron to realize ways of:
- Appealing to consumer demand for more sustainable practices
- Saving money by reducing leakage
- Improving processes at facilities that provide all elements of the oil and gas production (upstream, midstream, and downstream)
- Unlocking access to meaningful data to better make decisions regarding climate change[9].
But an outstanding question remains: what if this work conflicts with the fiduciary responsibility of maximizing shareholder value? Even more, if companies do not have an intrinsic motivation to use data for improving its environmental impact, there is no guarantee that companies will reform their practices.
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[1] Epstein, Marc, “Improving environmental management with full environmental cost accounting” Environmental Quality Management, Volume 6, Issue 1, September 1996, Pages 11-21
[2] Blanco, C. et al. “An inside perspective on carbon disclosure” Business Horizons, Volume 60, Issue 5, September–October 2017, Pages 635-646
[3] Veslasquez-Manoff, Moises, “Cashing in on Climate Change,” New York Times Sunday Review, December 6th, 2016
[4] “Greenhouse Gas Management,” Chevron, https://www.chevron.com/corporate-responsibility/climate-change/greenhouse-gas-management
[5] Ibid
[6] Ibid
[7] “Chevron’s GHG Reporting Protocol,” Ernst and Young, January 2014
[8] “Peak Oil? Majors Aren’t Buying into the Threat of Renewables,” November 8, 2017, The New York Times
[9] Blanco, C et al.
Given Chevron is a publicly traded company, I believe it is in their fiduciary responsibility to invest in carbon disclosures. Long-term owners of Chevron will want the management team to pay close attention to climate change, carbon impact and resulting changes in operations because it will have a long-term impact on the profitability profile of Chevron’s energy operations going forward. Thus, I believe focusing on the environment and shareholder value can be congruent.
Caleb- thank you for the thoughtful essay. I think the question you proposed at the end is highly relevant for us to keep in mind when choosing a company to join post business school. Just like the concept of conflicts between fiduciary responsibility of maximizing shareholder value and sustainability, my mind easily shifts the conversation towards the conflict between this same fiduciary duty and social impact. I am of the hope that our generation will make environmental and social impact top of mind when making business decisions in the future, and that society as a whole will begin requiring data and actions to be taken that follow up on these critical missions. For public companies in particular, environmental / social responsibility is often at odds with shareholder return – I too question whether the public markets will ever assign any value to these causes, or if we as business leaders will have to be a change agent so that companies build these practices into business models from the very beginning. The challenge in the long run is whether or not we can make environmental/social impact solutions profitable and so integrated that the mindset of the general public shifts to not think of shareholder return and these concepts as conflicting.
I like this article a lot. I do agree that disclosure of this information enhances accountability and both encourages and allows the improvement of operations. One point that the article does not emphasize but I think is worth noting is that sharing this information also makes it easier to share best practices between companies. As having better environmental standards is a goal that all companies can attain without hurting each other, the sharing of information is a key and important first step for companies to work together to enhance environmental standards across industries as a whole.