Environmental, Social and Governance Materiality and Task Force on Climate-related Financial Disclosures

ESG Materiality

 
Our annual materiality assessment allows us to work with our key stakeholders in determining the material ESG factors that have the potential to impact our strategy and ability to deliver shareholder value.

Dave Lye, Vice President,
Sustainability and Canadian Government Affairs

In 2018, we identified the following ESG issues as being most impactful to our business strategy and operations.

Encana engages with key internal and external stakeholders each year to complete a materiality assessment identifying environmental, social and governance (ESG) issues that may affect our corporate strategy. Through this assessment, we evaluate ESG issues against two criteria: impact to our business and importance to stakeholders.

Environmental

  • Climate change
  • Water
  • Seismic activity
  • Spills
  • Air emissions
  • Biodiversity
  • Chemical use
  • Waste management

Social

  • Community concerns
  • Indigenous concerns
  • Development restrictions

Governance

  • Stakeholder activism
  • Legacy assets

Safety

  • Process safety
  • Occupational health and safety

Task Force on Climate-related Financial Disclosures:

The Financial Stability Board established an industry-led task force: the Task Force on Climate-related Financial Disclosures (TCFD), to help identify the climate-related financial disclosures that would be useful to investors, lenders and insurance underwriters in understanding material risks. The Task Force developed four widely adoptable recommendations on climate-related financial disclosures: governance, strategy, risk management and metrics and targets. Encana is incrementally adopting the TCFD recommendations while continuing our ongoing efforts to identify and manage potential climate risks.

Governance

Our existing governance framework allows us to effectively manage climate-related risks throughout our company. Sustainability and ESG-related issues and risks are evaluated by the Board on a quarterly basis. As part of Encana’s Board of Director’s Mandate, the Board is required to annually review and adopt a strategic planning approach and approve the corporate strategic plan, which considers opportunities and risks to the business. The Corporate Responsibility, Environment, Health and Safety Committee (CREHS), a committee of the Board, is responsible for oversight of sustainability, ESG-related issues and ensuring overall corporate responsibility. CREHS also reviews and makes recommendations on Encana policies, standards and practices regarding sustainability and climate change.

Strategy

 

Encana’s business strategy is risk-based and incorporates a focus on identifying the key ESG issues that have the potential to impact our strategy. Our approach to strategic planning and scenario analysis is conducted on a year-round basis and considers the impacts of commodities pricing, carbon pricing, regulations and the long-term financial impacts associated with climate change. This process incorporates insights from various contributors within the company as well as external advisors and private commodity market analysis firms, and consists of four interconnected and iterative workflows:

Macro Assessment

We conduct a macro assessment of the business and industry environment that focuses on key trends, risks and opportunities with the potential to impact our corporate strategy.

Benchmark Assessment

We benchmark our strategic and competitive positioning versus companies both inside and outside the exploration and production industry. This provides real-time business intelligence and enhances our understanding of peer strategies and industry trends.

Portfolio Assessment

We conduct an internal assessment to evaluate the current state of the portfolio while considering potential opportunities to advance or enhance value through technological innovation and efficiencies, reduction of uncertainty and optimizing allocation of our resources. During this phase, a suite of individual asset development profiles are constructed or revised to test various scenarios and approaches to optimize long-term value creation.

Develop Strategic Assessment

We incorporate the above findings in developing a strategic assessment and analysis to test the fitness of the current strategy and discuss potential pathways to deliver value to shareholders over the short and long-term. This assessment is presented to and discussed with the Board of Directors on at least an annual basis.   

Climate-related risks are considered throughout our corporate strategic planning and scenario analysis process. In conducting our scenario analysis we relied on internal modeling, supported in part with the International Energy Agency’s (IEA) World Energy Outlook 2018 to better understand the future patterns of a changing global energy system. In the 2018 Outlook, the IEA includes three scenarios: (1) the “Current Policies Scenario” that assumes no changes to policies in place, (2) the “New Policies Scenario,” reflecting the effects of announced policies, and (3) the “Sustainable Development Scenario” that represents an integrated approach to avoid an increase in global temperature beyond 2 degrees Celsius above pre-industrial levels. By using scenarios, we can consider a range of potential risks around commodity prices, and the potential risk associated with emissions reduction scenarios. Through our internal scenario process, we test our current portfolio of assets against potential future outcomes to determine where challenges and opportunities exist.

We recognize that climate-related risks have the potential to impact our business in several areas. 
Carbon Tax

We incorporate the above findings in developing a strategic assessment and analysis to test the fitness of the current strategy and discuss potential pathways to deliver value to shareholders over the short and long-term. This assessment is presented to and discussed with the Board of Directors on at least an annual basis.   

Commodity Prices

To better understand the range of risks associated with future commodity prices and the potential price risk associated with GHG reduction scenarios, we utilize a range of commodity prices in our scenario work that helps to provide insight into the potential supply and demand of our products.

Operations

Severe weather events including hurricanes, fires and floods can impact our operations. We continue to explore engineering and processes resiliency planning to help mitigate the physical risks of a changing climate.

We believe our corporate strategy and multi-basin approach enables us to meet the challenges posed by current and future climate-related risks. Our development portfolio is highly focused on short cycle time opportunities which allows to maintain operational flexibility at both the asset and portfolio level. This provides for fast conversion of capital into cash flow, and a high degree of agility in managing risk and responding to opportunities. In a challenging market, we have continued to demonstrate capital discipline while also lowering overhead and general operating costs. We expect to remain a leading North American low-cost operator by strategically managing our supply chain and utilizing technology and innovation to responsibly develop our assets. 

Risk management

Climate-related considerations are integrated into key business planning and risk management processes throughout the company. As outlined in our Corporate Risk Management Policy, the Board is required to review quarterly risk reports that identify the significant risks to Encana and the mitigation strategies in place. Encana also engages with key internal and external stakeholders each year to complete an ESG materiality assessment that identifies issues that may affect our corporate strategy. Through this assessment, we evaluate ESG issues against two criteria: impact to our business and importance to stakeholders. The results of this assessment are communicated to the Executive Leadership Team and the CREHS Committee of the Board.   

Metrics AND Targets

Encana has an established history of annually measuring, managing and reporting our performance on climate-related issues and then benchmarking our performance against our peers. In Canada, the oil and natural gas sector will be subject to new regulations, effective January 1, 2020, designed to ensure the sector’s methane emissions are reduced by 40 – 45% by 2025, relative to 2012 emissions. We have pledged to implement actions which will ensure compliance with the new regulations when they become effective. From 2016 – 2018, our methane intensity decreased from .43 tCH4/MBOE in 2016 to .22 tCH4/MBOE in 2018. Over that same three-year period, we also decreased our greenhouse gas intensity from 27.12 CO2e/BOE in 2016 to 17.33 CO2e/BOE in 2018. Our performance highlights our objective to utilize technology and innovation in our operations to manage climate-related risks.   

All sustainability performance data and metrics can be found here.