While most oil and gas stocks have weathered the recent plunge in the US stock market, a new report says they could lose up to six percent of shareholder value if they do not address two major environmental challenges.

International efforts to curb greenhouse gas emissions through measures like the Kyoto Protocol, as well as growing public concern over preserving unique ecosystems and communities in areas where oil and gas companies operate, are likely to greatly affect the bottom lines of many companies, says the report by the World Resources Institute (WRI).

"Investors ignore environmental issues at their own peril," said Duncan Austin, a WRI economist and co-author of the study, Changing Oil: Emerging Environmental Risks and Shareholder Value in the Oil and Gas Industry , released Wednesday.

"Environmental issues can have a significant impact on a company's bottom line and stock price," he added.

WRI, a Washington-based environmental think tank, receives significant corporate funding and often works on projects with other international environmental groups and the World Bank.

The report constitutes an unprecedented effort to assess how the stock values of specific companies — 16 in all with a combined market capitalization of nearly one trillion dollars — may be affected by the two key issues.

"Climate change and protecting the environment and people are the two big issues developing now, and the oil and gas industry runs up against both of them," said Austin.

"As a matter of transparency and responsible performance, companies should at a minimum be disclosing the financial risks associated with these challenges to their investors," he added.

Calculations not disclosed

While companies are believed to use such an analysis in their internal planning, none has made those calculations public, despite regulations by the US Security and Exchange Commission (SEC) requiring publicly held corporations to disclose to their shareholders future business risks that could fundamentally affect performance.

"It strikes us that these (environmental) issues are financially significant enough that companies should disclose them," Austin told IPS.

Only three companies — BP, Conoco and Phillips — have identified climate change in their annual reports as a possible influence on their financial performance, but none has tried to quantify it.

The WRI report comes amid growing evidence that investors are themselves increasingly concerned about risks posed by environmental issues, especially global warming and efforts to reduce greenhouse gases.

So far this year, 18 firms have faced shareholder resolutions asking management to do more about global warming, usually by reducing their own greenhouse gas emissions.

A resolution from the holders of 20.2 percent of stock — including several major institutional investors — in energy giant ExxonMobil called on it to move more aggressively into renewable energy to avoid losses in share value.

The WRI study included several predominantly US companies, as well as big international producers, including ChevronTexaco, ConocoPhillips, Eni, ExxonMobil, Occidental Petroleum, Repsol YPF of Spain, Royal Dutch Shell Group, TotalFinaElf, and Unocal.

Number of scenarios

The report took the two issues — climate change and constraints on exploiting oil and gas deposits in environmentally sensitive regions — and devised a number of scenarios for both, then assessed how each company might benefit or lose under each scenario.

For climate change, scenarios ranged from all countries — including the United States — implementing the Kyoto Protocol, which requires them to sharply reduce emissions of carbon-based gases over the next decade, to one where no action was taken by any country to comply with the Protocol.

The study found that if Kyoto is widely observed, companies, such as US Apache and Burlington Resources, which favour natural gas, could see their shareholder value increase. The boost would be only slight if, as deemed "most likely", the United States stayed out of the Protocol and enacted modest domestic measures to limit greenhouse gas emissions of its own.

Conversely, those companies that depend more on oil, particularly Occidental, Enterprise Oil, and Repsol, could lose an estimated four percent of shareholder value under the report's "most likely" scenario.

Even if the US continues to reject the Protocol, says the report, US firms, especially those with operations in the European Union — whose members have ratified the treaty — will still be affected.

Extensive assets

"Changes in the single, global oil market will be felt throughout the industry, and many US-based companies also have extensive assets in countries where climate policies appear likely," said Amanda Sauer, who was also a co-author.

The report did not use companies' investment in renewable energy sources as a variable in assessing future performance. "BP and Shell are world leaders in renewables," Austin said, "but if you look at the value of what they are putting into renewables against the bulk of their assets, it's almost negligible from the perspective of an investor."

Concerning constrained access to oil and gas reserves, the study found that Apache, ChevronTexaco, ConocoPhillips, TotalFinaElf, Repson, Occidental and Unocal have a larger than average share of their holdings in sensitive areas, which could make them difficult to exploit.

In just the past week, ChevronTexaco workers in Nigeria were taken hostage by women belonging to the Ijaw ethnic group, in the latest in a long history of difficult relations between multi-national oil firms and minority groups who inhabit the country's oil-rich and heavily polluted Niger Delta region.

ExxonMobil, Burlington, Eni, and Royal Dutch/Shell, by contrast, were found to have relatively fewer reserves in environmental or indigenous hotspots. — IPS