This is a summary of the key findings across all 8 companies analysed. In the full report, each company has a dedicated section with in-depth findings.

Figure 1 indicates the relative performance of each company across the four themes of scenario modeling, scenario outputs, consideration of market risk in the financial statements, and use of carbon prices. It reveals that progress is being made but a large gap remains in company consideration of the potential business impacts.

There are clear inconsistencies in the current use of scenario analysis

Disclosure outputs are more useful if comparable—a guiding principle of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures’ (TCFD) recommendations. Currently companies take different approaches to different scenarios, hampering comparability. This points to the need for standardisation of scenarios.

Analysing third-party price assumptions is not a substitute for a rigorous stress test

Oil and gas companies largely concede that lower future demand might bring lower commodity prices. Modelling this relationship sits at the heart of scenario analysis, and some do it.  Others, however, have skipped this process, instead measuring their resilience against the price assumptions of third party scenarios. This can lead to counter-intuitive outcomes, where companies contend they would be worth more on an NPV basis in a 2°C scenario than their own planning cases that are built on greater demand.

If financial statements were prepared using assumptions in line with a consistent, 2°C scenario, there might be additional implications

Presenting a fair picture of oil and gas companies’ financial health requires that management make certain assumptions about future events and conditions – including long-term commodity prices – within the audited financial statements.

Disclosures of future commodity prices used in impairment testing, show that prices are expected to head upwards over the long-term, implying an expectation of demand to follow the same trend. What happens if the Paris Agreement targets are met? Other things being equal, we’d expect that prices would be lower than the company’s expectations, putting companies’ assets at higher risk of financial stranding.

 Investors need assurance that companies are appropriately planning and safeguarding against this risk.

A 2°C pathway means that some companies will lose, but current scenario analyses see everyone winning

Despite a general lack of assessment of the financial consequences of a 2°C scenario, several analyses do point to some company-level impact from meeting the Paris Agreement targets.  Most companies have opted for a narrative discussion. In some instances, this can still provide useful insights.

The quantification of impact is still limited. Some companies have valued their assets under different oil and carbon prices. But overall, quantification of financial impact is largely absent. Why? One company has suggested that a lack of standardised analysis and assumptions may make quantified results unhelpful. There is some truth to this.

Companies defer to a carbon price test, but it is a weak proxy for profound change

Companies often test current assets and investments against carbon prices converging around $40/tCO2—equivalent to about $1 to $2 added to the per barrel cost. This seems a weak proxy for the profound effects that the low-carbon transition will have upon oil and gas companies. Ignoring scope 3 emissions (from the use of the products) only further minimises the utility, as these typically comprise 80-90% of an oil and gas company’s overall emissions.

At least one company claims to model the impact that actual carbon prices may have on demand; others may do this as well, but none disclose their conclusions.