…Destroying Energy Security, Part 3…
This is the last of three articles examining the potential effects of incorporating climate change and sustainability measurements in audited financial statements.
Note that the SEC’s current proposals are restricted to climate change, while international organizations also include sustainability measurements.
While many groups, such as Climate Action 100+, are trying to coerce corporations into including ESG measures in their reporting, these articles show how ESG measures can be made a legal requirement.
While the stated rules of the IFRS and ISSB are to create clarity, the real purpose is to eliminate the use of fossil fuels.
No consideration is given to energy security.
The rules will accomplish several objectives that will ultimately lead to the elimination of fossil fuels.
- Demonstrate that investments in fossil fuels are very risky so as to keep banks and other investors from investing in, or loaning money to, or insuring, those who produce, refine or transport, or use fossil fuels directly or indirectly.
- Establish reporting requirements that are legally enforceable so that directors and officers of companies are liable if reporting is inaccurate and incomplete, even when future events are not predictable.
Three examples of proposed ISSB rules can illustrate the complexities and breadth of reach of climate or sustainability reporting.
Case 1: Oil exploration and production (E&P)company.
- E&P companies own valuable oil reserves. These reserves when brought to the surface and refined will emit large quantities of CO2 and other greenhouse gasses (GHG).
- The E&P company must disclose estimates of these potential emissions based on their sensitivity to future price scenarios that account for a price on carbon.
- The E&P must disclose how price, demand and climate regulations will affect capital budgets for exploration, acquisition and development of assets.
Banks and investors will use this information to establish whether it is too risky to invest in E&P companies. The E&P company will have to finance its operations with internally generated cash flow, unless it has access to capital from banks and investors. Without capital, it will not be able to develop its reserves and the oil will be trapped in the ground. It should be noted that virtually every company has debt, and that without it most can’t operate.
Obviously the company will also have to report on GHG from flaring, power generation, drilling, gas processing, and transport.
Directors and officers will be at risk if their estimates are wrong.
Case 2: Agricultural company:
- Agricultural companies must disclose the percentage of agricultural products sourced from regions with High or Extremely High Baseline Water Stress.
- Agricultural companies must disclose (1) Total water withdrawn, and (2) total water consumed, percentage of each in regions with High or Extremely High Baseline Water Stress.
- They must describe water management risks and discuss strategies and practices to mitigate those risks.
- Number of incidents of non-compliance associated with water quantity and/or quality permits, standards, and regulations.
Case 3: Oil and natural gas development:
- The same water disclosure rules would apply to any company participating in fracking.
- Many areas where fracking is used are water stressed. Sustainability rules could prevent development of oil and natural gas from shale formations.
The proposed IFRS and ISSB rules cover 11 sectors and 68 industries. Few industries would escape.
For example, these are the industries in the Consumer Goods Sector.
- Accessories & Footwear
- Appliance Manufacturing
- Building Products & Furnishings
- Household & Personal Products
- Multiline and Specialty Retailers & Distributors
The pervasiveness of these proposals is mind boggling.
The proposed metrics are to be included in audited financial statements and would have the effect of law.
As of today, the SEC is evaluating its separate rules pertaining to climate change, while Canada is about to consider imposing the IFRS ISSB rules on Canadian companies.
Most Americans have scant knowledge about the rules being considered by the SEC, and probably no awareness of how the IFRS is trying to impose its ISSB rules on countries everywhere.
Too little is being covered by the media and too many organizations have a vested interest in imposing these rules. Consider the accounting companies that will garner huge commissions from auditing these complex financial statements.
Environmental, Social, and Governance, (ESG) issues are being incorporated in investment decisions, in varying degrees, by some institutional investors. This has led to some popular support for ESG reporting.
But, all climate and sustainability rules ignore energy security.
Climate and sustainability reporting proposals will destroy energy security.
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More detailed information is available by following these links to some of the sources referenced in these article.
- Counting Carbon Molecules, Dr. Nemeth, https://bit.ly/3PmMp3f
- FASB https://bit.ly/3OkiTd2
- IFRS Sustainability Appendix B https://bit.ly/3zfXr4S
- IFRS Rules https://bit.ly/3oeHdTb
- FAF Strategy https://bit.ly/3OlxHZ9
- Comparing SEC, IFRS, ISSB https://bit.ly/3Oo4c8Z
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