Climate change as a financial risk and opportunity

Climate change as a financial risk and opportunity

We recognize climate change as one of the biggest threats the world faces, and one which poses particular challenges to our business. On the other hand, supporting the low-carbon energy transition will enhance our business resilience by providing new opportunities.

Climate-related risks and opportunities extend beyond normal business strategic planning cycles. Climate change has the potential to impact Baker Hughes over the short- (5 years), medium- (5-10 years) and long-term (beyond 10 years) time horizons.

To better understand how the potential long-term impacts of climate change could impact our business, in accordance with the TCFD recommendations, we have begun the process of climate change scenario analysis. We have conducted qualitative climate change risk and opportunity hotspot mapping to understand the climate issues that could impact the business in the future under different scenarios.

We have conducted a qualitative review into the scenario attributes of an orderly (1.5–2-degrees Celsius), disorderly (2–3-degrees Celsius) transition scenarios and a business as usual (>4-degrees Celsius) scenario considering peer reviewed, publicly available third-party scenarios, including the International Energy Agency  (IEA), Network for Greening the Financial System (NGFS), and the Intergovernmental Panel on Climate Change’s (IPCC) Representative Concentration Pathways.

We identified the climate-related risks and opportunities with the potential to impact Baker Hughes’s business under the range of climate change scenarios. We are exposed to a number of risks associated with a shift to a low-carbon economy, in particular, the changing demand for hydrocarbons and policies that could prohibit upstream oil activities and production. Such changes could prohibit demand for our upstream oilfield services and equipment. Associated with this are risks around our ability to attract human talent and access capital if investors and recruits consider upstream activities negatively.

While we recognize these risks, the opportunity around the transition is also significant to Baker Hughes. We are playing a key role in enabling the low-carbon energy transition and our growing energy transition solutions products and services can support an increased demand for low emissions products, emissions monitoring and measurement solutions, and low-carbon energy technology and services, from new and existing customers.

Beyond transition aspects, we also recognize the risks arising from physical changes in climate, in particular the potential impacts of extreme weather events impacting our operational sites and equipment in the 120 countries around the world we operate in. This risk of extreme weather events was identified as one of the risk scenarios within our 2020 ERM risks and mitigation action plans and is being executed to ensure we respond appropriately.

In the future, we will explore these risks and opportunities identified in further detail, conducting quantitative climate change scenario analysis to gain further insight into the potential materiality of the issues.

TCFD Index
 
1. Governance

 

TCFD recommendations

 

Disclosure content and references

 

Describe the board's oversight of climate-related risks and opportunities

 

2020 Corporate Responsibility Report, Corporate governance, p. 17-19

2020 Corporate Responsibility Report, Board oversight of people, planet, and principles, p. 18

 

Describe management's role in assessing and managing climate related risks and opportunities.

 

 

 

2. Strategy

 

TCFD recommendations

 

Disclosure content and references

 

Describe the climate-related risks and opportunities the organization has identified over the short, medium, and long-term.

 

Describe the impact of climate related risks and opportunities on the organization's businesses, strategy, and financial planning.

 

Describe the resilience of the organization's strategy, taking into consideration different climate related scenarios, including a 2°C or lower scenario.

 

2020 Corporate Responsibility Report, Climate change as a financial risk and opportunity, p. 41

 

 
 
 3. Risk management

 

TCFD recommendations

 

Disclosure content and references

 

Describe the organization's processes for identifying and assessing climate-related risks.

 

2020 Corporate Responsibility Report, Climate change as a financial risk and opportunity, p. 41

2020 Corporate Responsibility Report, Board oversight of people, planet, and principles, p. 18

2020 Corporate Responsibility Report, Relationship between risk management, sustainability, and Board committees, p. 19

Baker Hughes climate policy*

Baker Hughes carbon pricing policy*

Baker Hughes methane policy*

 

Describe the organization's processes for managing climate related risks.

 

2020 Corporate Responsibility Report, Climate change as a financial risk and opportunity, p. 41

2020 Corporate Responsibility Report, Relationship between risk management, sustainability, and Board committees, p. 19

2020 Corporate Responsibility Report, Identifying our material priorities, p. 23

2020 Corporate Responsibility Report, Corporate governance, p. 20

 

Describe how processes for identifying, assessing, and managing climate-related risks are integrated into the organization's overall risk management.

 

2020 Corporate Responsibility Report, Climate change as a financial risk and opportunity, p. 41

2020 Corporate Responsibility Report, Relationship between risk management, sustainability, and Board committees, p. 19

 

 
 
4. Metrics and targets

 

TCFD recommendations

 

Disclosure content and references

 

Disclose the metrics used by the organization to assess climate related risks and opportunities in line with its strategy and risk management process.

 

2020 Corporate Responsibility Report, Planet Section, p. 37-38

2020 Corporate Responsibility Report, Relationship between risk management, sustainability, and Board committees, p. 19

2020 Corporate Responsibility Report, Aligning compensation practices with our priorities, p. 20

 

Disclose Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas (GHG) emissions, and the related risks.