In a previous post, we reported on the Climate Risk Disclosure Act of 2021 (the “Act’) being placed on list of all bills reported from committee and eligible for House floor action, some sweeping changes required by that Act, and the Act’s uncertain future in the Senate.
This Part II focuses on the effect of the Act on companies engaged “in the commercial development of fossil fuels,” that is, oil and gas companies.
It is important to note that the requirements on oil and gas companies under the Act apply to any “covered issuer” that is commercially develops fossil fuels. The term ‘covered issuer’ means an issuer that is required to file an annual report under subsection (a) or section 15(d) of the SEC Act.
There are significant disclosure obligations under the Act that are proposed to specifically apply to oil and gas companies. Under the Act, all oil and gas companies would be required to report: (1) an estimate of total and disaggregated amounts of direct and indirect GHG emissions attributable to combustion, flaring, process emissions, directly vented emissions, fugitive emission/leaks and land use changes; (2) the sensitivity of reserve levels to future price scenarios; (3) the percentage of companies’ reserves developed under several different “potential future state of the market” scenarios; (4) a forecast for development prospects under these different scenarios; (5) potential GHG emissions embedded in proved and probable reserves; and (6) methodologies used for detecting and mitigating fugitive methane emissions.
This final category deserves special attention. The final category requires a number of very specific disclosures of particular relevance to the oil and gas sector, such as data or information concerning the frequency of leak checks, processes and technology to detect leaks, the percentage of assets covered by disclosed methodologies, reduction goals for methane leaks, the amount of water withdrawn from freshwater sources to support operations and the percentage of water from regions of waste stress or wastewater management challenges. Many oil and gas companies have fought regulation of this type on a state level and should be aware that the regulation is creeping in on a federal level though the “back door” of corporate disclosure.
Undoubtedly controversial, the Act may not survive the Senate. However, oil and gas companies should be cognizant of the far reaching proposals contained therein.