EP4 Climate Change Risk Assessment

With climate change effects presenting increasing risks to the global economy, energy asset owners and investors are taking measures to better understand and mitigate the potential implications. Accordingly, lenders and financial backers are requiring stringent due diligence to ensure climate-related risks are appropriately assessed and disclosed.

The Equator Principles provide a global risk management framework for financial institutions to assess, evaluate and monitor environmental and social risks on projects they are financing, including most major industrial projects. In October 2020 a new revision (EP4) introduced a requirement for a Climate Change Risk Assessment (CCRA).

Lummus Consultants conducted a CCRA on the Venture Global Plaquemines LNG facility located along the Mississippi River in Louisiana, 20 miles south of New Orleans. The site’s location exposes it to hurricanes and associated storm surges as well as river flooding. The CCRA requirement, relatively new at the time, was performed for the benefit of a consortium of global investment banks backing the facility.

The CCRA addressed physical risks such as wildfires, floods, hurricanes, heatwaves and droughts, as well as chronic risks like changes to precipitation patterns, ambient temperature changes and sea level rise. As recommended by United Nations Task Force on Climate-related Financial Disclosures (TCFD), the report also addressed climate transition risk categories that relate to the global transition to a lower-carbon economy, such as regulatory policy changes, technology risks, market risks, legal risks and reputational risks.

Lummus Consultants assessed the potential climate change risks, classifying from low to high. The assessment did not identify any medium or high risks other than a potential future change in U.S. greenhouse gas regulatory policy to impose a carbon tax on industries. Any economic impact from such risk would be mitigated by the client’s proposed carbon capture and sequestration facilities, as well as the efficient, low-emission design of the on-site combined-cycle power plant, which eliminates dependence on the electricity grid. Locational risks relating to flooding and hurricane, had been appropriately addressed in the project design.