We have aligned this discussion with the recommendations from the Task Force on Climate-Related Financial Disclosures.
Board and Management Oversight: Vermilion has reported publicly on climate risks and opportunities via our CDP submissions since 2014, with data back to 2012. These risks and opportunities are identified by key staff across our company, including our Health, Safety and Environment (HSE) team, Sustainability team, Government and Public Relations teams, Business Unit Managing Directors, and our Economist. All of these employees are experts in their fields, and gather a wide array of inputs that inform our analysis. These include research reports, external stakeholder organizations, government policy and regulation discussions, industry initiatives, communities, landowners, and the work of global bodies such as the United Nations, including the Paris Agreement, and the Organization for Economic Development.
Climate-related responsibility sits directly with the HSE team and the Sustainability team. These teams provide quarterly reports to the Executive team and the full Board of Directors. On our Executive team, our Chief Operating Officer is responsible for climate-related operations performance, such as emissions and HSE performance, and our Executive Vice President, People and Culture, is responsible for overall Sustainability performance.
In addition, the Chief Operating Officer, Director of Corporate HSE and Manager of Corporate HSE brief the Board’s HSE committee, which meets three times per year. The Terms of Reference for the HSE Committee specifically include Review and Monitoring of Health, Safety, and Environment related Sustainability Initiatives. The executive and senior management have the ability to take various initiatives, research/results and other information to this group to validate operational/policy change or organizational direction adjustment.
The Board, as our highest governing body, has responsibility for reviewing all risks, including climate-related, and their implications for our business strategy and how we implement it, both in the short and longer term.
Best in Class Health, Safety and Environment and Integrated Sustainability are two of Vermilion's six key strategic objectives, resulting in environmental considerations being engrained in all portions of our business. This provides corporate direction for programs that have the potential to enhance our performance and operational efficacy. The progress of these objectives is tracked on a monthly, quarterly and annual basis and shared across all levels of staff (Office staff, Field staff, management, senior management, etc.).
The decision in 2015 to establish Integrated Sustainability as a strategic objective supported previous alterations to our project management framework (site specific and play development level) to enhance aspects of sustainability and climate change (regulatory change, enhanced water management, emissions reduction, footprint reduction / ecosystem fragmentation minimization). This has a direct impact on our long term sustainability strategy. The aspects of climate change that influence our sustainability strategy include, but are not limited to:
We are committed to reducing the impact our operations have, beginning with being compliant in all regulatory regimes, across all business units, while providing long-term growth and income to our investors. These are primary drivers for identification and implementation of climate change initiatives such as emission reductions and fuel efficiency.
Sustainability initiatives are assessed on a project-specific basis, including aspects such as the benefit to the communities where we operate, the benefit to the environment (reduced carbon emissions or fuel consumption, carbon offset, water reduction / reuse, etc.), and financial considerations.
Vermilion emphasizes projects that will have a positive, lasting impact both short term and long term. We leverage our successes to inform initiatives that are in the assessment, planning or initial implementation stages. Examples include (see our Environment section for further details):
Risks associated with climate change and environmental impact have been identified, with potential impacts quantified for each Business Unit, using our Enterprise Risk Management process. We report on those publicly through our annual CDP submission. This process is used to assess implications, identify mitigating measures and build a portfolio of business opportunities.
Vermilion's BU and asset risks are aggregated into the Corporate Risk Register. Risk is assessed through a grid matrix based on the anticipated impact severity and subsequent probability of an event occurring in consideration of the impact to people, the environment, financial results and social license to operate. Stakeholders considered in risk assessment include, but are not limited to, internal (Executive, Board of Directors, employees, contract staff), and external parties (landowners, NGOs, investors, the general public, regulators, governments, industry groups).
Risks and opportunities are prioritized based on impact to the environment as well as monetary implications of identified climate change risks and potential project opportunities. Based on this information as well as business need, projects are prioritized in a manner that allows Vermilion to support healthy communities as well as augment our strong shareholder value.
Depending upon the business unit, risks cover such areas as regulatory changes, carbon pricing and taxes, community support, rising sea levels, increased severity of tropical storms, temperature increases, and potential for increased natural disasters.
Vermilion has undertaken a GHG Quantification Methodologies study and completed a global Carbon Liability Analysis for all Business Units (BU); this project is annually reviewed by Vermilion staff, and is undergoing a completely new analysis in 2017. The Carbon Liability Analysis factors in a number of potential regulatory, price point and taxation changes that are possible over the next several years. These documents detail the current emission generating activities (Scope 1, 2, 3) and details the liability and risk associated with the carbon footprint of operations in each BU. The types of emissions considered in this quantification survey include NOx, SOx, VOC, H2S, PM, BTEX, CO2, CH4, N2O, PFC, HFC, and SF6. Vermilion completes fugitive emission assessments annually at select locations in Canada, France and The Netherlands.
Scenario planning: At a minimum, on an annual basis, and more frequently when required (such as daily during cyclone season), Vermilion examines and reassesses the risk associated with climate change and the potential effects on operations globally. This review considers the potential impact of a 2oC scenario, with these impacts included in our risk assessment process, including:
The results annually feed back into our risk/opportunity management process to ensure Vermilion has a sound data foundation to support responsible decisions in our operating areas. Detailed analysis of these risks, including potential impact, financial implications, management methods and cost of management, can be found in our annual CDP submission. Vermilion also proactively conducts operational and engineering reviews aimed at increasing efficiency, reducing emissions and monetary expenditure requirements at major facilities, which has resulted in the identification of a large number of opportunities.
Carbon pricing: The primary challenge associated with carbon pricing encountered is the rapidly changing geopolitical landscape, which has a direct impact on regulation and taxation schemes. As these have the potential for rapid change to the price of carbon, Vermilion assesses the price of carbon on both a realized cost perspective as well as shadow pricing, and has identified likely carbon pricing scenarios for all of our operations. This work pertains to Scope 1 and 2, and is applicable to Scope 3 emissions, as these emissions have the potential to be impacted by an economy-wide carbon tax, such as the tax in Alberta.
The determination of carbon pricing currently resides with our Corporate HSE group. The process for determining pricing includes a review of current pricing assertions by governments and a review of published research relating to the Paris Agreements and potential carbon price requirements.
We have reported on key climate-related metrics annually since 2012 (see Performance Metrics), including:
Climate-related performance feeds into our Corporate performance scorecards (STIP and LTIP Scorecards), which are used to assess overall corporate results and are major drivers in determining short and long-term incentives (bonus and share awards). Potential bonus is available to reward employees for personal contributions and achievement of organizational objectives. Environmental performance and performance against our peer group is a weighted component in annual bonus calculation and compensation reviews. Potential long term incentives are available to reward employees for achievement of long-term corporate objectives, promote sustained increases in shareholder value and drive achievement of long-term strategy. Performance against project goals and outcomes therefore impacts each employee's total compensation, including Vermilion's Executive Team.
(additional details provided in our Environment section):
|Southeast Saskatchewan asset purchase in April 2014||Reduce flaring by 50% by 2020||204% achieved||In 2015 and 2016, through the construction of new infrastructure, operational changes and increased infrastructure runtimes, we have reduced emissions in our Southeast Saskatchewan assets by 75% since our acquisition.|
|The Netherlands||Vermilion set a target corporately to identify areas within our operation we could leverage green energy as a means to replace traditionally generated electricity. This grew from implementing solar and TEG powered lease sites across the Canada Business Unit to initiating ongoing and planned reviews of purchased power across our operations||100% achieved||On January 1, 2016, Vermilion began purchasing 100% green power from our largest power provider in our Netherlands Business Unit, resulting in a 97% reduction in Scope 2 emissions in that Business Unit from 2015 to 2016. This represents an estimated 39,145 tCO2e avoided based on 2015 emission intensity levels for purchased energy and 2016 energy consumption.|
|Global||Top quartile emissions intensity (lowest emission rate on a per BOE basis) when compared against our peer group||100% achieved||Vermilion’s emissions reduction initiatives and activities have resulted top quartile performance when compared against our peer group.|
Given our successful meeting of targets to date, we are assessing global, science-based target setting, and will continue this work into 2018.