TCFD
Task Force on Climate-Related Financial Disclosures
Kirby has committed to its stakeholders to enhancing its ESG disclosures by integrating elements of TCFD into its sustainability reporting. Established in 2015 by the Financial Stability Board (FSB), the Task Force on Climate-related Disclosures (TCFD) was asked to develop recommendations for more effective, voluntary climate-related disclosures that could promote more informed investment, credit, and insurance underwriting decisions.
The task force developed four widely adoptable recommendations on climate-related financial disclosures that are applicable to organizations across different sectors and jurisdictions. The recommendations represent core elements of how organizations operate: governance, strategy, risk management, and metrics and targets. Each of the TCFD thematic elements is reflected in the structure of our disclosures on the following pages. In this initial TCFD report, Kirby has primarily focused on scenarios in the marine transportation business which represents 98% of the company’s greenhouse gas emissions. We anticipate further enhancements, refinements, and disclosures in the future as the experience and practice of TCFD reporting becomes more common amongst global companies.
Governance
The organization’s governance around
climate-related risks and opportunities.
Strategy
The actual and potential impacts of
climate-related risks and opportunities
on the organization’s businesses,
strategy, and financial planning.
Risk Management
The processes used by the organization
to identify, asses, and manage
climate-related risks.
Metrics and Targets
The metrics and targets used to assess
and manage relevant climate-related
risks and opportunites.
Petrochemicals Are a Key Driver of Kirby’s Growth
“The chemical sector is the largest industrial consumer of both oil and gas.”
“Petrochemicals—components derived from oil and gas that are used in all sorts of daily products such as plastics, fertilizers, packaging, clothing, digital devices, medical equipment, detergents, and tires—are becoming the largest drivers of global oil demand, in front of cars, planes, and trucks.”
Kirby’s Marine Transportation Group moves thousands of cargo tons of petrochemical, refined, and agricultural products annually. According to the National Waterways Foundation, moving products via the waterway is the safest and most environmentally friendly mode of transportation. As noted in the graph below, demand for these products has increased over the years and according to the IEA is expected to do so moving forward. Therefore, the company is met with a dual challenge. Global demand for petrochemicals is forecasted to continue increasing, but the manufacturing and delivery of these products is expected without additional carbon emissions. Growth for business will continue to increase, thus the rise in potential CO2 emissions from fuel usage to move said products. Under the two-degree Celsius framework as recognized by the Paris Agreement within the United Nations Framework Convention on Climate Change, stakeholders have requested that companies do their part in reducing carbon dioxide emissions. Kirby is taking action to contribute to the emissions reduction effort and is developing its corporate short- and long-term strategy. We are continuously monitoring forecasts through the Board’s oversight and a network of sustainability teams along with an ESG Executive Committee, and Kirby is well positioned to implement its resilience strategy and succeed in reducing emissions.
The petrochemical industry remains the largest source of oil demand growth
Total petrochemical consumption outlook
Despite the decline in demand due to the COVID-19 pandemic, oil demand for petrochemical feedstock is expected to grow by 3 mb/d through to 2030, and by a further 1.5 mb/d to just over 17 mb/d in 2030.
Black Oil
- Crude Oil
- Asphalt
- Fuel Oil
- Carbon Black
- Vacuum Gas Oil
- Vacuum Tower
- Bottoms
- Bunker Fuel
- Residual Fuel
- Etc.
Pressurized
- LPG
- Propane
- Butadiene
- Isobutane
- Propylene
- Ethylene
- Butane
- Raffinate
- Natural Gasoline
- Etc.
Petrochemicals
- Methanol
- Ethanol
- Reformate
- Naphtha
- Ethylene
- Propylene Oxide
- Menoethylene Glycol
- Vinyl Acetate Monomer
- Benzene
- Ethyl Benzene
- Toluene
- Xylene
- Paraxylene
- Styrene
- Caustic Soda
- Acrylonitrile
- Etc.
Refined Products
- Kerosene / Jet Fuel
- No. 2 Oil
– Diesel Oil
– Heating Oil - Lube Oil
- Etc.
Agriculture
- Ammonia
- Ammonium Thiosulfate
- Urea Ammonium Nitrate (UAN)
- Etc.
Kirby Contributes to a Better Quality of Life Every Day
Kirby’s products and services are vital to the development of common end-products illustrated in this slide and are used by people daily. Our involvement stretches from our marine transportation business which safely and efficiently moves millions of cargo tons of petrochemicals, refined products, and agricultural liquids annually, to the environmentally friendly oilfield equipment manufactured by Kirby Distribution and Services. We are proud to play a critical role in the supply chain of countless products which create a better quality of life for people around the world.
Governance
A. Describe the board’s oversight of climate-related risks and opportunities.
Kirby Corporation’s Board of Directors oversees the Company’s environmental, social, and governance (ESG) initiatives and disclosures. The Board is committed to elevating Kirby’s leadership profile and reputation among our investors, government policymakers, stakeholders, and others on ESG issues and practices and believes the Company has a unique opportunity to be an industry leader on these important issues.
The Board also engaged in strategic discussions regarding incident/emergency response and recovery (i.e. hurricanes), capital allocation, workplace and vessel safety, energy transition, and various alternative future business scenarios.
B. Describe management’s role in assessing and managing climate-related risks and opportunities.
At the management level, climate-related risks and assessing opportunities ultimately reside with the Chief Executive Officer, who chairs the ESG Executive Committee. The Committee includes the segment presidents, Executive Vice President and Chief Financial Officer, Chief Human Resources Officer, Vice President and General Counsel, and Vice President of Investor Relations. Reporting to this Committee is a cross-functional team designed to advise executive leadership and the Board on managing climate and sustainability-related risks and assessing future business opportunities.
Strategy: Overview
Transition risks: Risks related to the transition to a lower-carbon economy including policy and legal risk; technological risk; market risk (for example, consumer preferences); and reputational risk. Transition risks include policy constraints on emissions, imposition of carbon tax, water restrictions, land use restrictions or incentives, and market demand and supply shifts.
Physical risks: Risks associated with physical impacts from climate change, including the two-degree Celsius change, may impact company assets, personnel, and operating companies. These impacts may include acute physical damage from variations in weather patterns (such as severe storms, floods, and drought) and chronic impacts, such as sea-level rise and desertification. Physical risks include the disruption of operations or destruction of property.
In the following sections, Kirby has identified climate-related resiliency themes, risks, and opportunities with potential impact to our business over short (1–3 years), medium (3–5 years), and long-term (5+ years) time horizons and the Company’s approach to each.
Kirby’s resiliency themes of risk assessment, strategy, engagement, and operational efficiency helped guide our team to better understand our roles and responses to said risks.
Strategy: Transition Risks
Risk Management
Kirby is already experiencing some of the consequences of growing climate-related risks. While many companies are forecasting what could happen in the future, Kirby is exposed to certain climate-related risks in the Company’s marine transportation business given its exposure to hurricanes and high water. In accessing TCFD disclosure and climate-related risks, the impact of weather volatility is a risk that has been identified as evidenced by a National Oceanic and Atmospheric Administration report on Global Warming and Hurricanes.
The Board has the overall responsibility for risk oversight, with a focus on the most significant risks facing the company, including climate change. The Board implements its risk oversight function both as a whole and through delegation to the Committees. Each of the Board Committees is responsible for oversight of risk management practices for categories of risks relevant to its functions, with the Governance Committee being responsible for risks and opportunities related to ESG and the Audit Committee being responsible for the oversight of the Company’s comprehensive risk management plan.
As part of our enterprise risk management process, Kirby is performing a scenario analysis of risks and opportunities associated with changing weather patterns that could have significant impact on our marine transportation operations. Scenario planning is not intended to predict the future, but to highlight potential climate change risks and better prepare the Company for possible future business interruptions and decisions.
The following slides are examples of Kirby’s scenario planning for hurricanes and seasonal high river level conditions, which are growing climate-related risks to the Company’s marine transportation business. In these scenarios, the Company has highlighted why these events are important, the potential financial and operational impacts, and the strategy, processes, and procedures management uses to mitigate the risks.
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In addition to the trend in low-emission technology, there is a potential for reduced demand for conventional oil and gas pressure pumping services as new alternative energy technologies become viable. However, Kirby is uniquely positioned in that its partnership with OEMs enables it to market its equipment to new markets. This is an emerging opportunity for Kirby, and it is one that Kirby is pursuing as a long-term strategy.
Why is the energy technology transition an opportunity for the distribution and services businesses?
- As described in Kirby’s Form 10-K, greenhouse gas emissions, including carbon emissions or energy use, have increasingly become the subject of a large amount of international, national, regional, state and local attention.
- Investors and customers are encouraging oil and gas companies to invest in emissions reducing alternatives and to consider low emission alternative energy technologies. Thus, there is increased demand for low emission oil and gas pressure pumping equipment through low-emissions technology and electrification.
- KDS is positioned as a leader due to its technology solutions. KDS designs and manufactures equipment that can significantly reduce the emissions from hydraulic fracturing.
- Through its subsidiary, S&S, it was the first to bring electric fracturing equipment to the market that reduces emissions compared to traditional diesel combustion units
- KDS has designed and is further developing natural gas power generation and energy storage systems solutions, which offer expansion opportunities into new commercial and industrial markets while reducing emissions
- Demand for low noise, electric, or dual fuel equipment is anticipated to offset reduced demand for conventional pressure pumping equipment
- Focus on industry leadership in the distribution of low-emissions alternative power sources for vehicles, trucks, oilfield equipment, and power generation
- Diversification through applying its expertise to new markets
Kirby manufactures power generation equipment that is creating opportunities in new commercial and industrial markets
Natural Gas Reciprocating Generators
- High Power Output: 2.5 MW
- High Mobility: 53’ x 8.5’ x 13.5’
- Wide Operating Range: Up to 122ºF operation
- Sound attenuated environmental enclosure
- Scalable operation with multiple generators
- Integrates with existing S&S power distribution products
- 27.5% more fuel efficient than turbines assuming zero grid power supply at net zero consumption
- Reduces CO2e by 32% resulting in the cleanest power platform available for e-frac
- High Power Density: Up to 3 MWh storage capacity
- High Power Output: Up to 3 MW
- High Mobility: 53’ x 8.5’ x 13.5’
- Self Contained: Drive-up and plug-in (no additional rig-up)
- Output Voltage Flexibility: 13,800 volt shown
- Wide Operating Range: Up to 122ºF operation
- Intelligent Operation: Advanced Battery Management System (BMS) and Power Management System (PMS)
- Highly Scalable: Platform Based Design (allows for smaller systems or use of multiple systems to meet different power demands)
- Integrated Turnkey Packages: ESS compliments existing S&S power generation and power distribution products
Strategy & Opportunity Management
Opportunity Readiness – Governance
- Executive management plus Board oversight and assessment to monitor emerging innovative technologies in the marketplace
- Monitoring state and federal policy regarding legislation impacting oil and gas production and policies to increase environmentally friendly technologies or mandates
- Monitor emerging macro level insights to better understand market trends and forecasting
Strategy
- Investment in new technologies and partnerships with OEMs to meet customer demands
- Develop and construct new eco-friendly technologies and equipment to support customers transitioning away from conventional fracking equipment
- Enable customers to achieve their carbon emissions reduction goals and commitments
- Capital investment in new technologies and R&D
- Adopt new practices and modify technician training including operating standards for new equipment
- Development of new distribution and dealer relationships with OEMs
- Industry leadership in the distribution of low-emissions alternative power sources for vehicles, trucks, oilfield equipment, and power generation
- Continue innovation and commercialization of eco-friendly pressure pumping equipment with electric, dual fuel, and low noise products that support our customers needs to reduce emissions and environmental impact.
- New revenue streams from applying natural gas power generation equipment to new markets including back-up power in commercial and industrial applications
- Develop and expand energy storage system solutions that have combined high powered storage and the capability to work in challenging operation conditions with the potential for vast application use
Marine Transportation – GHG Emissions
~99% of Kirby’s emissions are from the marine transportation fleet
Emissions Performance (2015 to 2023)
- Since 2015, total CO2e emissions have declined 16% despite significant growth in the fleet
- Total barrel capacity up 11%
- Result of inland fleet acquisitions offset by offshore fleet retirements
- Diesel consumption declined 5% ‘22Y/’23Y despite increased activity in ton-miles
- Since 2015, average age of inland boats is down ~13 years and offshore boats is down ~18 years
Emissions Reduction Targets:
- Short term target: Overall, Kirby emissions declined 24%per barrel of capacity by 2024, nearing our goal of 25%
- Long term target: 40% reduction of emissions per barrel of capacity by 2040
Kirby Corporation – GHG Emissions Summary
Scope 1 Emissions Performance
- ~99% of Kirby Corporation Scope 1 GHG emissions come from marine transportation operations, primarily towboats and tugboats
- Ultra low sulfur diesel fuel consumption and CO2e emissions have declined 16% since 2015 despite significant growth in the number of vessels in the fleet
- Emissions data reporting project completed in 2022 – helps Kirby to better understand it’s emissions footprint on a micro level and assist customers in achieving their emissions reductions goals
Scope 2 Emissions Performance
- While Scope 2 MWh increased year on year, overall CO2eMT declined due to providers utilizing more renewable energy sources for electricity such as wind and solar
- 100% of Scope 2 energy is consumed from the grid
- Signed a 36-month agreement for 100% green e-certified energy in April 2020 for all Kirby marine transportation facilities in Texas
- ECO Solutions Champion issued ~3,000 renewable energy certificates in 2023; 100% renewable representation
- ~20% of Scope 2 energy is renewable