The war in Iran is once again driving up oil and natural gas prices sharply. For businesses, this poses a direct threat to their cost structure and competitiveness. Less than five years after Russia’s invasion of Ukraine, business leaders are once again confronted with the same harsh reality: those who depend on fossil fuels are vulnerable to price shocks.
Ironically, the current geopolitical tensions, partly fueled by a climate-change denier in the White House, once again show why understanding climate impact is essential for businesses. Not because regulators require it, but because it is necessary for sound risk management.
Fossil Fuel Dependence is a Financial Risk
Globally, approximately 75 percent of greenhouse gas emissions are driven by the use of fossil fuels. For most companies, that share is even higher, as only specific sectors such as agri-food partially deviate from this pattern. In other words, CO₂ emissions are fundamentally a measure of fossil energy consumption. And that is precisely where the risk lies.
From a European perspective, fossil fuels are problematic for three reasons.
First, Europe is highly dependent on imports. More than 95 percent of our oil consumption and 85 percent of our natural gas consumption come from outside Europe. This makes companies vulnerable to geopolitical tensions and causes a structural outflow of capital to producing regions, capital that is not reinvested in the European economy.
Second, the production and transportation of fossil fuels are highly concentrated. Over the past few weeks, everyone has learned that the Strait of Hormuz serves as the transit route for one-fifth of global seaborne oil and liquefied natural gas shipments. Moreover, OPEC controls more than 80 percent of known oil reserves. Such concentrations and logistical bottlenecks translate into significant pricing power for producers and heightened sensitivity to shocks such as war.
Third, fossil fuels can only be stored to a limited extent. Strategic reserves provide a buffer of several months to absorb sudden disruptions. But over periods of quarters, let alone years, supply must be continuously secured.
Measuring CO₂ Means Measuring Risk
In this context, climate reporting is not an administrative burden but the most direct way to identify where and to what extent a company is exposed to fossil fuel risks. This analysis is typically conducted at two levels.
Scope one and Scope two emissions encompass a company’s direct CO₂ emissions, including those generated through its own use of fossil fuels and indirect emissions from purchased electricity. These are relatively easy to measure and mitigate. Electrification of transport and heating, combined with renewable energy, provides a clear and cost-effective path toward reducing dependence on fossil fuels.
However, the real exposure often lies in Scope three emissions. These include all CO₂ emissions across a company’s value chain, both from the products it purchases and the products it sells.
Companies import raw materials, intermediate goods and products whose production takes place elsewhere, often through energy-intensive processes that rely heavily on fossil fuels. Consider steel or aluminum from Asia. The carbon content of these metals reflects more than their climate impact. It also indicates how much fossil energy is needed to produce them and how vulnerable they are to fluctuations in energy prices.
The same logic applies to end users. Companies that manufacture products whose use depends on fossil fuels are indirectly exposed to the same price shocks. Think of a manufacturer of components for gasoline-powered vehicles or a supplier of airline meals. When oil prices rise, demand for these products may come under pressure as customers adjust or postpone consumption. In this way, fossil fuel dependence translates not only into cost risks but also into demand risks.
The Lesson for Business Leaders from Compliance to Strategy
In recent years, sustainability reporting has been driven largely by regulation. European initiatives such as the CSRD have required companies to become more transparent about their environmental, social and governance impacts.
Today, that trend is slowing. The European Omnibus proposals reduce certain reporting obligations and internationally, political support for climate policy has become less certain.
But companies that view climate reporting merely as a compliance exercise are missing the point. The question is not whether they should report because the law requires it. The question is whether they understand their risks.
Recent geopolitical developments make it clear that fossil fuel dependence is not an abstract climate issue but a tangible economic risk. Companies that lack visibility into this risk are operating blind.
The conclusion is simple but fundamental. Companies that do not know their carbon footprint lack insight into one of the most significant risks of our time.In a world where energy prices are shaped by geopolitics, supply concentration and structural dependence, understanding fossil fuel exposure is crucial. CO₂ reporting provides that insight.
Ironically, the current geopolitical tensions, partly fueled by a climate-change denier in the White House, once again show why understanding climate impact is essential for businesses. Not because regulators require it, but because it is necessary for sound risk management.
Fossil Fuel Dependence is a Financial Risk
Globally, approximately 75 percent of greenhouse gas emissions are driven by the use of fossil fuels. For most companies, that share is even higher, as only specific sectors such as agri-food partially deviate from this pattern. In other words, CO₂ emissions are fundamentally a measure of fossil energy consumption. And that is precisely where the risk lies.
From a European perspective, fossil fuels are problematic for three reasons.
First, Europe is highly dependent on imports. More than 95 percent of our oil consumption and 85 percent of our natural gas consumption come from outside Europe. This makes companies vulnerable to geopolitical tensions and causes a structural outflow of capital to producing regions, capital that is not reinvested in the European economy.
Second, the production and transportation of fossil fuels are highly concentrated. Over the past few weeks, everyone has learned that the Strait of Hormuz serves as the transit route for one-fifth of global seaborne oil and liquefied natural gas shipments. Moreover, OPEC controls more than 80 percent of known oil reserves. Such concentrations and logistical bottlenecks translate into significant pricing power for producers and heightened sensitivity to shocks such as war.
Third, fossil fuels can only be stored to a limited extent. Strategic reserves provide a buffer of several months to absorb sudden disruptions. But over periods of quarters, let alone years, supply must be continuously secured.
Measuring CO₂ Means Measuring Risk
In this context, climate reporting is not an administrative burden but the most direct way to identify where and to what extent a company is exposed to fossil fuel risks. This analysis is typically conducted at two levels.
Scope one and Scope two emissions encompass a company’s direct CO₂ emissions, including those generated through its own use of fossil fuels and indirect emissions from purchased electricity. These are relatively easy to measure and mitigate. Electrification of transport and heating, combined with renewable energy, provides a clear and cost-effective path toward reducing dependence on fossil fuels.
However, the real exposure often lies in Scope three emissions. These include all CO₂ emissions across a company’s value chain, both from the products it purchases and the products it sells.
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Recent geopolitical developments make it clear that fossil fuel dependence is not an abstract climate issue but a tangible economic risk.
Companies import raw materials, intermediate goods and products whose production takes place elsewhere, often through energy-intensive processes that rely heavily on fossil fuels. Consider steel or aluminum from Asia. The carbon content of these metals reflects more than their climate impact. It also indicates how much fossil energy is needed to produce them and how vulnerable they are to fluctuations in energy prices.
The same logic applies to end users. Companies that manufacture products whose use depends on fossil fuels are indirectly exposed to the same price shocks. Think of a manufacturer of components for gasoline-powered vehicles or a supplier of airline meals. When oil prices rise, demand for these products may come under pressure as customers adjust or postpone consumption. In this way, fossil fuel dependence translates not only into cost risks but also into demand risks.
The Lesson for Business Leaders from Compliance to Strategy
In recent years, sustainability reporting has been driven largely by regulation. European initiatives such as the CSRD have required companies to become more transparent about their environmental, social and governance impacts.
Today, that trend is slowing. The European Omnibus proposals reduce certain reporting obligations and internationally, political support for climate policy has become less certain.
But companies that view climate reporting merely as a compliance exercise are missing the point. The question is not whether they should report because the law requires it. The question is whether they understand their risks.
Recent geopolitical developments make it clear that fossil fuel dependence is not an abstract climate issue but a tangible economic risk. Companies that lack visibility into this risk are operating blind.
The conclusion is simple but fundamental. Companies that do not know their carbon footprint lack insight into one of the most significant risks of our time.In a world where energy prices are shaped by geopolitics, supply concentration and structural dependence, understanding fossil fuel exposure is crucial. CO₂ reporting provides that insight.
