Vermilion’s board and senior leadership provide risk oversight, including for sustainability-related risks such as climate.102-30
Effective risk and crisis management positions the company for better resiliency from the present to the future. We use a multi-layered approach to ensure identification, awareness and effective management of our business-related risks, including sustainability risks. This includes identifying business opportunities that may arise from changing conditions.
Sustainability-related risks and opportunities, including those related to climate, are integrated into multi-disciplinary Company-wide risk identification, assessment, and management processes as part of our Enterprise Risk Management (ERM) system, based on the Committee of Sponsoring Organizations of the Treadway Commission (COSO) framework. This provides an integrated approach to managing risk as it impacts strategy and performance, and includes Operational, Market & Financial, Credit, Organizational, Political, Regulatory Compliance, Strategic and Reputational, and Sustainability categories.
This is translated into action by our Executive Committee, which reviews and manages the ERM process through implementation of associated policies and procedures. Within our Executive Committee, the Vice President International and HSE and the Vice President North America have risk management responsibility on an operational level, while the Chief Financial Officer is responsible for overseeing risk management performance.
Bottom-Up is how staff implement, maintain and improve risk management processes, applying the hazard-risk-mitigation process in every part of our business.
Risks are identified by key staff across our Company, including our Operations, Finance, Health, Safety and Environment, Economics, Government and Public Relations, and Sustainability teams at corporate, business unit and asset levels. These employees have significant experience, and use a wide array of inputs, including operational and facility assessments, technical and research reports, external stakeholder organizations, government policy and regulation changes, industry initiatives, communities and landowners, and non-governmental entities.
The results are incorporated as specific risks into our Corporate Risk Register, which provides a consistent framework to ensure the effective tracking and communication of our material risks. Using our Risk Matrix as a prioritization tool, Teams assess each risk's severity, likelihood, speed of onset, and vulnerability using scales from 1 to 5 for each factor, described in terms of human, environment, financial, social license and cybersecurity impacts. In addition, risks such as commodity pricing, production and carbon taxes are stress-tested to identify the impact of changes over time.
Our sustainability materiality analysis, which assesses issues with impact for both the Company and our key stakeholders, is integrated into our ERM system using the Corporate Risk Register through a collaboration between our Finance, HSE, Operations and Sustainability teams. The results are reviewed annually at minimum by the responsible teams, and provided to the Executive Committee and the Board and its Committees as appropriate, who further review and assess the risks including interdependencies based on the company’s risk tolerance.
Financial impact is deemed substantive if it could cause a business loss of more than $10 million CAD (unrisked and before mitigation/recovery instruments).?Substantive is defined further using the following thresholds:
Emissions Long-Range Planning
To support climate risk identification and management, we previously developed a Carbon Liability Assessment Tool, with Scope 1 emissions quantification and regulatory information for each business unit. We assessed the price of carbon on both a realized cost and shadow pricing basis, and identified likely carbon pricing scenarios for all our operating areas.
Our internally developed Emissions Long-Range Planning Tool uses our 10-year projections of production to estimate Scope 1 and 2 emissions, associated carbon taxes and the impacts of emission reduction projects. We are now using this to support our planning of production, capital allocation, budgeting, target setting and merger, acquisition and divestment decisions.