This guest blog was written by Christina Carlson, Policy Research Assistant with the Union of Concerned Scientists.
Ten miles outside New Orleans stands a two-million barrels per day oil refinery, surrounded by community streets in Meraux, Louisiana. When Hurricane Katrina made landfall, the Meraux oil refinery flooded. Damaged tanks spilled 25,000 barrels of oil, covering over a square mile of neighborhood and contaminating city canals and 1,700 homes. Then refinery-owner Murphy Oil paid $330 million to settle 6,200 claims, buy contaminated property, and perform cleanups.
Following the incident, Murphy Oil disclosed to its investors that the refinery faced climate-related risks: “The physical impacts of climate change present potential risks for severe weather (floods, hurricanes, tornadoes, etc.) at our Meraux…refinery,” the company wrote to the Securities and Exchange Commission (SEC). But Valero Energy Corporation acquired the refinery from Murphy Oil in 2011, and Valero has yet to disclose any risks from the physical impacts of climate change to the Meraux facility. Why not?
Valero is not alone. A recent report by the Union of Concerned Scientists entitled, Stormy Seas, Rising Risks: What Investors Should Know About Climate Change Impacts at Oil Refineries, models sea level rise and storm surge and finds climate-related risks at five refineries on the Gulf and East coasts. The five companies who own the refineries—Chevron, Exxon Mobil, Marathon Petroleum, Phillips 66, and Valero—have not fully disclosed these risks to their shareholders.
This is despite SEC guidance asking companies to consider and disclose climate-related risks that are material. It is despite past events that show how significant cost and damage to facilities, communities, and the environment can be. And it is despite climate projections that show rising seas and strengthening coastal storms in our warming world.
The Gulf Coast faces rates of sea level rise that are among the highest in the world—in some places more than three times the global average. Evidence suggests that climate change will lead to an increase in Atlantic hurricane intensities over the next century meaning the ones that do form could be more damaging. As sea levels rise, the devastating impacts of storms will reach further inland. Wetlands and barrier islands that line the Gulf Coast have historically provided a natural line of defense against storms and coastal floods. However, these fragile systems are themselves subject to the forces of nature—including subsidence, storms, erosion, and sea level rise—and human development. As these natural defenses change, so does their ability to protect the coastline from some floods.
It is clear that the region is vulnerable to climate impacts, but what’s the big deal about disclosure? Transparency provides incentives for companies to improve performance and reduce risks while helping investors and the public hold companies accountable. Moreover it makes good business sense. Companies are getting more and more pressure from their investors on these issues: in 2015, investors are poised to file a record number of shareholder proposals that seek corporate disclosure and action on a wide range of environmental and social issues. There is also evidence to suggest that companies who lead in these areas, and disclose their actions, can improve their value and business performance.
When companies fail to disclose and prepare for climate change, others will feel the impact. Nearby communities and ecosystems pay when they are exposed to harm from refinery spills, accidents, and other damage. The public pays in their tax dollars when the government needs to fund loans and cleanups and pays at the pump when refineries are shut down. And investors are exposed to undue financial risk. Companies owe it to these groups to be more responsible corporate actors; they should consider, disclose, and prepare for the impacts of climate change.