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FAR not modelling climate transition risks to business

30 May 2019

Market Forces has named FAR as one of the 21 companies that investors should immediately divest from.

Why? Because the company has had more than three years to show it can transition to be in line with the Paris Agreement. It has not only failed at this but is also actively undermining climate action by seeking to expand the polluting gas industry.

FAR’s chairman and managing director’s presentation on future global energy use and their response to questions at today’s annual general meeting (AGM) only confirmed that assessment. It was also made clear that FAR believes it’s very unlikely that the world will act to rapidly reduce carbon emissions and no modelling has been conducted on how its business would be impacted if that action was taken.

FAR not compatible with 1.5 degrees global warming

FAR is a pure-play oil and gas exploration company with its main assets in Senegal, a country already feeling the devastating effects of our climate emergency.

A recent report by Global Witness has found that:
• any production from new oil and gas fields, beyond those already in production or development, is incompatible with limiting warming to 1.5°C

• all forecast capex in new oil and gas fields is incompatible with limiting warming to 1.5°C

• 9% of oil and 6% of gas production forecast from existing fields is incompatible with limiting warming to 1.5°C.

Yet, the company has not stress-tested its assets under a 1.5-degree scenario. What it has done is read the various energy scenarios published by BP, Shell, the International Energy Agency and McKinsey and concluded, as the chairman Nic Limb described, that “the business of oil consumption goes on, and will go on under any scenario that we’ve seen. We don’t see it affecting FAR in terms of demand for oil”, with no further evidence provided to shareholders or even a clarification as to which scenario it thinks will happen.

Most, if not all of these scenarios will either result in catastrophic impacts from global warming going well above 1.5 degrees, or they rely on unviable carbon capture and storage technology to reduce emissions. All four of the BP scenarios highlighted by FAR at the AGM are out of line with the Paris climate accord and the “Rapid Transition” scenario relies on fantasy carbon capture and storage technology for one-third of the CO2 emissions reductions.

The chairman and managing director did mention the risks of banks and investors becoming more hesitant to fund and invest in oil and gas projects and the physical risks that the climate crisis is causing – such as sea level rise.

Legal liability

Under Australian corporate governance laws, directors need to ensure they manage risks – including financial risks – associated with climate change. Failure to do so could mean those directors are legally liable.

FAR company’s climate policy states that FAR is “not materially exposed to physical, regulatory, oil market, cost or legal risks related to climate change because we are not currently producing (oil and gas).”

This doesn’t however factor in that if investors decide to keep to 1.5 degrees of warming, the value of the exploration assets would be worthless since no new oil and gas can be produced under the 1.5 degrees pathway. So there’s a serious risk whether or not the company is actually producing oil and gas.

Take action

FAR’s current business model is completely out of line with limiting global warming to 1.5 degrees – yet our superannuation funds are putting our money into fueling dangerous warming through companies like FAR. Tell your super fund to divest from companies like FAR, that are betting their business model on an unsafe future.