Climate-related risks and opportunities

Climate-change-related risks and opportunities are integrated into OMV’s Enterprise-Wide Risk Management (EWRM) process aimed at identifying, assessing, and managing business-related risks. The short- and medium-term risks are analyzed for their impact on the Company’s three-year financial plan. The effects of long-term risks are evaluated based on a semi-quantitative analysis, taking into account a wider range of uncertainty. We see climate change having a limited impact on our business plans and objectives in the medium term (five-year horizon). However, management pays close attention to climate-change-related long-term risks and opportunities and takes these into account in strategic decision-making.

Risks are identified in a bottom-up approach by the employees responsible for our day-to-day business, and in a top-down approach by the corporate units responsible for monitoring regulatory, market, and reputational risks in line with the latest national and international developments. These risks are assessed in terms of their potential impact on the medium-term financial performance plan.

In the bottom-up approach, climate-change related risks are identified using OMV’s environmental risk management method, which is in conformity with ISO 14001, the standardized methodology of the EWRM process. (For more details on EWRM, see Risk and Opportunities Management.)

The following climate-change-related risks and opportunities are taken into account on this basis:

Physical risks

Periods of low or no precipitation on surface or subsurface water supplies would lead to inability to access water for the normal operations (internal consumption) in areas of low water availability. Intensified water scarcity due to changes in precipitation, more frequent drought periods, and increased water stress, could be a long-term risk to OMV Upstream exploration and production activities, e.g., in Tunisia and other countries in the Middle East and Africa region as well as in Romania, which are already experiencing a certain level of water stress.

Transition risks

Potential future restrictions on the carbon intensity of feedstocks, political and security risks in the countries of origin of our feedstock, and any other supply limitations pose a threat to sufficient refinery feedstock supply.

There is a risk of imbalance between certificates allocated and Company-required emissions volumes, resulting in higher costs, generated by the uncertainties about the allowance demand and abatement costs.

The risk of decarbonization policies forces OMV to operate on a net carbon-neutral basis. Current and emerging regulations in line with international public-sector initiatives, such as the Paris Agreement, and their subsequent transposition into national law in the countries in which OMV operates result in limits on GHG emissions by the energy industry. This process of decarbonization will change the energy mix and will lead to a reduced demand for fossil fuels with a high carbon content.

There is a risk that demand for refined fuels may decrease due to less carbon-intense substitute products coming onto the market. Emissions regulations, energy efficiency regulations, and regulations on the increased share of renewables in the energy mix are expected to result in a 5% decrease in gasoline and diesel production in our European core markets, and to a 51% decrease in our heavy products production by 2025.

Potential regulatory limitation of flaring of associated gas will affect OMV assets that still have continuous flaring and venting practices in place, e.g., in Yemen, Romania, and Tunisia.

Reputational risks stem from the increasing number of investors who include a company’s environmental and social responsibility as a high-weight criterion in their investment decision-making process. This can be for reasons of internal policy or due to regulatory pressure for public investment transparency regarding sustainability issues.

Transition opportunities

Decarbonization will create opportunities for OMV based on the increased demand for lower- or zero-carbon fuel (natural gas, CNG, LNG, hydrogen) and higher-value products generated from hydrocarbons, such as petrochemicals. We expect a 12% increase in petrochemicals production by 2025 (as compared to 2016).

 

A key opportunity for OMV when it comes to the supply chain and/or value chain is to supply refineries with innovative feedstock.

We identify the risks and opportunities stemming from climate-change-related issues and evaluate their impact on our business in the short, medium, and long term.