SASB Industry Spotlight Blog

Spotlight on NRR Metrics

Posted by Himani Phadke

Apr 22, 2014 6:50:41 AM

Climate change is affecting the way companies manage and report risks.

 

As a recent example, on March 31, ExxonMobil announced it will be publishing reports on carbon asset risk as part of its ongoing dialogue between itself and its shareholders. These reports will be included in annual financial filings and materials, such as the SEC Form-10-K.

 

SASB’s draft Standards for the Non-Renewable Resources sector –which are nowopen to public comment– provide  a minimum set of material environmental, social, and governance (ESG) issues and related accounting metrics for their disclosure in annual SEC filings.   While oil and gas companies are recognizing risks related to greenhouse gas (GHG) emissions, some companies may use the uncertainty associated with issues like climate change to avoid disclosing specific metrics. However, because of the uncertainty, and likely significant impact on companies if more stringent GHG regulations are imposed, it is important to provide metrics that help investors understand the risks. Apart from the direct costs of mitigation, GHG regulation has implications for companies’ risk profile, cost of capital and value of reserves, as changes in the price and demand for oil and gas from such regulations could limit their extraction.

 

The accounting metrics that SASB has established for Reserve Valuation and Capital Expenditures in the Oil and Gas, Exploration and Production industry are designed to help shareholders better understand operational performance and financial conditions related to risks to reserves and capital expenditures from a price on carbon. SASB has determined the following accounting metrics for the issue of Reserve Valuation and Capital Expenditures, which provide financial analysts and investors with a standardized way to assess the likely impacts on companies from carbon pricing, and therefore determine their risk profile:

 

  • Sensitivity of hydrocarbon reserve levels to future price projection scenarios that account for a price on carbon emissions.
  • Estimated greenhouse gas emissions potential embedded in proved hydrocarbon reserves.
  • Discussion of how price and demand for hydrocarbons and/or climate regulation influence the capital expenditure for exploration, acquisition, and development of assets.

 

The SASB Standards Development team is continuing to gather comments and feedback during the public comment period for the Non-Renewables Resource sector. This period is open until April 14, 2014.The completed Provisional SASB Standards for the Non-Renewable Resource sector will be issued in June 2014.

 

Non-renewable_energy

 

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About SASB

The Sustainability Accounting Standards Board (SASB) is a U.S. based, 501(c)3 non-profit organization located in San Francisco, California.  SASB was incorporated in July, 2011 for the purpose of establishing industry-based sustainability standards for the recognition and disclosure of material* environmental, social and governance impacts by companies traded on U.S. exchanges. SASB is accredited to establish sustainability accounting standards by the American National Standards Institute (ANSI). SASB is not affiliated with FASB, GASB, IASB or any other accounting standards board.

SASB believes that every investor has the right to material information.  SASB democratizes the availability of decision-useful information related to critical aspects of corporate sustainability performance and provides a basis for concerted action by companies, investors, regulators and the public in addressing environmental, social and governance issues.

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