Risk management
We utilize an integrated management system approach to identify, assess, prioritize and manage climate-related risks. This system links to the enterprise risk management process, which includes an annual risk review by the executive leadership team (ELT) and the board of directors.
We evaluate climate-related physical and transition risks through assessments required by our Sustainable Development (SD) Risk Management Standard. For operations and development, this is done through the annual SD risk assessment and resiliency workshops within each BU, and for new major projects through climate-related risk assessments and the project authorization process.
Read more about how we are managing sustainable development risks.
To understand long-term risk and mitigation options, we utilize a range of scenarios as described in the Scenario planning at ConocoPhillips section. This scenario approach helps us evaluate distinct outcomes related to the potential timing and intensity of government climate change policy development, the pace of alternative energy technology development and trends in consumer behavior.
This information is then used to shape our analysis and consideration of various outcomes for policy, technology and market risk.
We periodically review emerging climate-related risks with our ELT as part of our scenario monitoring system, managed by our Chief Economist’s Office. A cross-functional team enters events into a centralized database that is reviewed regularly for indications that risks are changing or developing. We use this “early warning” system to inform our strategies in a timely manner so that we can identify and implement effective mitigation measures. The scenario monitoring system helps us understand the pace and direction of future energy demand. For example, if regulations and technology were accelerating, this would indicate that we might be moving to a 1.5-degree scenario similar to the range identified in the IPCC “1.5 degree” report, and we would evaluate the appropriate business response. In our resiliency workshops, we use externally produced scenarios that describe the range of possible future physical risk.
We facilitate resiliency planning workshops within business units to identify and assess the risks and opportunities associated with the physical impacts of changing climate and the potential technology and solutions to mitigate risks and leverage opportunities. These workshops are conducted on a periodic basis aligned with our Capital Projects Management System approval process to ensure that our operations have access to up-to-date science provided by qualified consultants to inform their engineering and infrastructure decisions.
A climate-related risk assessment is conducted on any future project development that costs more than $50 million net and is expected to emit more than 25,000 tonnes CO� equivalent (tCO₂e) net to ConocoPhillips during any year of its operational lifespan. This assessment is mandatory for investment approval in our project authorization process. Project teams for qualifying projects are required to assess the potential risks and opportunities associated with GHG emissions, GHG regulation and a physically changing climate based on local jurisdictions and geographies as opposed to relying solely on our corporate scenarios. The climate risk assessment guidelines provide a framework for project teams to:
We assess climate-related risks early in the project engineering stage to better inform our investment decisions and facility design.
Our corporate authorization process requires all qualifying projects to include GHG pricing in their project approval economics. The base case for project approval economics now includes the higher of the forecast of existing regulations and the current transition scenario for that jurisdiction. Where there is no GHG price regulation, we use the current transition scenario for that jurisdiction. We also run two sensitivities:
This ensures that both existing and emerging regulatory requirements are considered in our planning and decision making. Read more about our approach to carbon pricing.
As part of the annual risk management process mandated by our SD Risk Management Standard, we examine operated assets and major projects against the physical, social and political settings of our operations. Subject matter experts in each BU and project identify and describe climate-related risks.
Each risk is then assessed using a matrix that evaluates both its likelihood and consequence. Risks rated significant or high are included in the corporate SD Risk Register. In evaluating the consequence level, we consider potential impacts on employee and public safety, sociocultural and economic impacts to stakeholders, environmental impact, and reputational and financial implications. We examine the interdependence of risks and work to identify emerging risks such as new regulatory requirements and emerging greenhouse gas (GHG) pricing regimes.
The table below lists our key climate-related risk management streams, their scope and purpose.
| SD Risk Management streams | Scope | Description |
|---|---|---|
| Corporate strategy | Corporate/portfolio | Defines the company’s direction for exploration and development, including portfolio, capital allocation and cost structure. |
| Climate Risk Strategy | Corporate/portfolio | Identifies options to reduce and mitigate climate-related risks as policies, markets and technologies develop over time. |
| GHG emissions intensity target | Business units and qualifying projects | Drives actions, reviews and management of future policy and market risk. |
| Long-Range Plan | Corporate/portfolio | Forecasts key data for our corporate strategy covering our proposed portfolio development and performance, including production, costs, cash flows and emissions. |
| Marginal abatement cost curve (MACC) | Business units | Prioritizes and designates GHG emissions reduction projects across our business units based on cost and emissions abated.� |
| SD risk management process | Corporate, business units and qualifying projects | Records all SD-related risks that are prioritized as significant and high to ensure that the mitigation progress is reported and issues are managed effectively.� |
| Climate Change Action Plan | Corporate, business units and qualifying projects | Records mitigation actions, milestones and progress in managing climate-related risks from the SD Risk Register.� |
Our climate-related risk management process is designed to drive appropriate action for adapting to a range of possible future scenarios. Through integrated planning and decision making, we develop mitigation plans for climate-related risk, track performance against our goals and adjust our plans as we learn and conditions evolve.
Local risks and opportunities related to our operations and projects are assessed and managed at the business unit level, enabling tailored business goals to address the challenges and opportunities unique to each region’s operations. Management of overarching climate-related risks, such as GHG target setting and prioritization of global emissions- abatement projects, and global reporting is managed at the corporate level.
The diagram below shows a simplified process flow of our climate-related risk management process.
Further, the ConocoPhillips Long-Range Plan (LRP) provides the data that underlies our corporate strategy and enables us to test our portfolio of projects against our climate-related risk scenarios, and thus make better-informed strategic decisions.
We are integrating climate-related risks into our corporate strategy and LRP, resulting in outcomes and activities such as:
Climate-related risks are also integrated into key categories in the ERM process. Read more about this process and our overall approach to managing sustainability risks.
