The Board has responsibility for reviewing all risks, including climate related, and their implications for our business strategy. Our executive team is responsible for the review and management of the Enterprise Risk Management process. These form an integral part of decision making and are documented and regularly reviewed, with appropriate action taken to manage risks to a level as low as reasonably practicable. For each risk case, our technical teams, business unit leadership, executive team and Board of Directors (depending on the risk case) assess the scope and materiality of the risk. These reviews include an assessment of the integrated nature of many risks that span more than one risk category. These assessments feed into our Corporate Risk Register, which provides a consistent framework to ensure the effective tracking of all of our material risks, communication of our risks throughout the organization, and the mitigation plans associated with reducing their impact.
Sustainability-related risks and opportunities, including those related to climate, are identified by key staff across our Company, including our Health, Safety and Environment team, Sustainability team, Government and Public Relations teams, and our business unit leaders. All of these employees have significant experience in their fields, and use a wide array of inputs to inform their analysis. These include research reports, external stakeholder organizations, government policy and regulation discussions, industry initiatives, communities and landowners, and global non-governmental entities.
As part of our ongoing cycle of risk identification, every business unit and corporate team assesses their risk cases to determine where sustainability and/or climate-related risk is a contributing factor. These are incorporated into the Corporate Risk Register Review, and provided to the Sustainability, HSE, Audit, and GHR Committees as appropriate, including projected timelines and the mitigation or opportunity measures related to them. This process formalizes identification and assessment of sustainability and climate-related risks and integrates them into the overall Enterprise Risk Management system, supporting the Board’s oversight of both climate-related risks and business sustainability.
In 2019, we also integrated our sustainability materiality analysis (incorporating issues with impact for both the Company and our key stakeholders, with generally wider ranging issues than solely financial materiality) into our Enterprise Risk Management process and Corporate Risk Register through discussions with each of our business unit leaders, and through a collaboration between our Finance, HSE and Sustainability teams.
We have also developed a Carbon Liability Assessment Tool to support climate risk identification and management, with Scope 1 emissions quantification information and regulatory information for each business unit. We assessed the price of carbon on both a realized cost and shadow pricing basis, and have identified likely carbon pricing scenarios for all areas under our operational control. The Tool provides a screening-level overview of Vermilion’s exposure to this emerging financial risk factor. It also provides the basis for developing carbon liability risk cases for all business units in 2020, supports ongoing identification of carbon opportunities, and supports activities such as business development, taxation review and marginal abatement cost curve preparation.
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.