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As climate risks mount, oil investors want transparency

The havoc wrought by cheap crude on oil companies may be only the beginning.

The Philadelphia Energy Solutions refinery is shown Oct. 24, 2014, in Philadelphia.
Getty Images
The Philadelphia Energy Solutions refinery is shown Oct. 24, 2014, in Philadelphia.

Climate change will "profoundly affect the economics of the industry," a group of institutional investors will contend on Friday. With risks mounting, they are urging energy companies to better disclose how environmental factors will change companies' bottom lines.

In a letter to the Securities and Exchange Commission to be announced Friday, 62 investors ask for better monitoring and disclosure of "material risks" to energy companies. They argue that rising exploration costs, renewable oil alternatives and carbon regulations will squeeze profits enough to warrant more transparency in financial filings.

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"Throw that in with much broader investor awareness and support for better evaluation of these risks, and we're in an entirely new ball game," said Shanna Cleveland, senior manager at environmental advocacy nonprofit Ceres, which organized the letter.

Transparency is crucial, she said, as more investors consider climate risk in their strategies. The letter outlines initiatives such as the Montreal Pledge, a commitment to measuring and disclosing the carbon footprint of companies in investors' portfolios.

"Meeting climate challenges must go hand in hand with ensuring that Americans have the affordable and reliable sources of energy necessary to grow our economy." -American Petroleum Institute

Cleveland said that BP on Thursday adopted a shareholder resolution for better carbon-risk disclosure.

The Carbon Tracker Initiative estimates that oil and gas companies will spend more than $1 trillion on exploration projects from 2014 to 2025. Those will require at least an $80 per barrel break-even price, well above where U.S. crude oil currently sits, at around $56.

Cheap oil effectively creates a stress test for planning projects under future climate pressures, the letter says.

The decreasing viability of exploration projects comes as oil demand is projected to fall and the European Union, United States and China, among others, have pledged to reduce greenhouse gas emissions. Those converging factors form "known trends" that should be disclosed under SEC regulations, the letter argues.

In a statement to CNBC, the American Petroleum Institute, an industry group, said that natural gas resources and investments from energy companies have helped bring about a reduction of greenhouse gases in the United States

"Meeting climate challenges must go hand in hand with ensuring that Americans have the affordable and reliable sources of energy necessary to grow our economy," the API said.

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The Ceres letter points to supposed shortcomings in transparency from ExxonMobil, Chevron and Canadian Natural Resources, specifically.

In response, Chevron said it "takes climate-related issues seriously and discloses information about its efforts to address risks."

"Chevron's production and resources will be needed to meet projected global energy demand, even in a carbon-constrained future," the American oil giant said.

Exxon noted that it shareholders will not vote on an environmental resolution this year because it released climate reports last year.

"ExxonMobil is taking action by reducing greenhouse gas emissions in its operations, helping consumers reduce their emissions, supporting research that leads to technology breakthroughs and participating in constructive dialogue on policy options," said William Colton, the company's vice president of corporate strategic planning, in a release last spring.

CNR declined to comment.