One of the key roles of the Board and company senior leadership is to provide risk oversight for Vermilion, including sustainability-related risks.102-30
As a responsible company, effective risk and crisis management is vital for Vermilion. We use a multi-layered approach to ensure identification, awareness and effective management of our business-related risks, including sustainability risks. This includes identifying business opportunities that may arise from changing conditions.
Our Enterprise Risk Management program is based on the Coso ERM Framework, and enables us to identify and continually monitor risks – including economic, environmental and social risks – defined in the following categories:
Risks and opportunities, including those related to sustainability in general and climate in particular, are indentified by key staff across our Company, including our Health, Safety and Environment ream, 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. Our staff also play a key role in identifying potential risk areas through their participation in the anonymous surveys prior to and after our business unit and global town halls. Their feedback and questions are shared with the Executive Committee, which in turn uses the information to guide strategy discussions, and reports back to staff with responses to concerns, ideas and suggestions raised. The feedback is also communicated to the Board when considered material.
Our sustainability materiality analysis (incorporating issues with impact for both the Company and our key stakeholders, with generally wider ranging and longer term issues than solely financial materiality) is integrated 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.
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 scope and materiality, including anticipated impact severity, the probability of an event occurring, and human, environmental, financial and social license to operate factors. We use our Corporate Risk Register to assess implications and identify mitigating measures to limit or reduce risk and potential liabilities to an acceptable level. These reviews include an assessment of the integrated nature of many risks that span more than one risk category. This provides uniformity across the company while allowing for customization in each of our business units.
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.
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.
Risks and opportunities are prioritized based on impact to the environment and our communities, as well as financial implications of identified climate change risks and potential project opportunities. Projects are prioritized to allow Vermilion to support both healthy communities and shareholder values.
Scenario Planning: At 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 1.5 to 2oC scenario, including:
Detailed analysis of these risks, including potential impact, financial implications, management methods and cost of management, can be found in our annual CDP submission, with a summary in our Annual Reports. Vermilion also proactively conducts operational and engineering reviews aimed at increasing efficiency, reducing emissions and expense requirements at major facilities, which has resulted in the identification of a large number of opportunities.
To support greenhouse gas-related risks and opportunities, Vermilion has undertaken a GHG Quantification Methodologies study, which included NOx, SOx, VOC, H2S, PM, BTEX, CO2, CH4, N2O, PFC, HFC, and SF6. We have also developed a Carbon Liability Assessment Tool to support climate risk identification and management, with Scope 1 emissions quantification 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 financial risk factor. It also provides the basis for developing carbon liability risk cases for all business units, supports ongoing identification of carbon opportunities, and supports activities such as business development, taxation review and marginal abatement cost curve preparation.
Carbon Pricing: The primary challenge associated with carbon pricing is the rapidly changing geopolitical landscape, which has a direct impact on regulation and taxation schemes. Vermilion has identified likely carbon pricing scenarios for all of our operations based on current government policies and published research relating to the Paris Agreement.
Further information can be found on the World Bank’s Carbon Pricing Dashboard.