Last week, Woodside Petroleum released its 2016 Sustainable Development Report. Such publications don’t normally garner a lot of attention, largely because they’re understandably seen by investors and the wider community as a marketing exercise, and distinctly “non-financial”.

But a commitment to test the company’s resilience to a scenario where global warming is limited to 2°C, means Woodside is preparing to share with its investors its financial risks from climate change.

In an oft-quoted speech to the Insurance Council last month, APRA Executive Board Member Geoff Summerhayes said that climate risks can no longer be seen as “a future problem or a non-financial problem”. He went further to say that “many of these risks are foreseeable, material and actionable now”.

To their credit, Woodside are one of just six listed Australian energy and utility companies that formally identify climate change as a material business risk, and did so well before Mr Summerhayes’ speech.

Why does this matter? Well, once a risk is viewed as financial in nature, rather than as an environmental or sustainability issue, then it tends to be managed with far more rigour.

But just as importantly, signals matter. Woodside is a top 20 ASX company, with a market capitalisation of more than $26 billion. It makes up over a third of the S&P ASX300 Energy index – it’s big. If Woodside classifies climate change as a material, financial risk, then you have to ask why doesn’t every other energy company?

In its 2016 Sustainable Development Report, Woodside may have become the first company in Australia – not just in the energy sector – to commit to implementing the recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD).

Responding to a “justifiable increase in the scrutiny of climate-related financial risk in large companies”, Woodside committed to addressing those recommendations not already covered by its submission to the CDP (formerly Carbon Disclosure Project).

The question now becomes: how thorough a job will Woodside do in disclosing its financial risks from climate change. Their likely starting point will be the IEA 450 scenario, which provides only a 50 per cent chance of limiting global warming to 2C. Oil Change International have summarised the numerous issues with the IEA 450 scenario, including the assumptions of ongoing growth in gas demand, and only a limited decline in oil demand by 2040.

Geoff Summerhayes’ speech quoted the 800 gigatonnes of CO2 that remained in the carbon budget according to the Global Carbon Project. It would be worth knowing just how well a company that is dependent on ever-growing markets for fossil fuels plans expects to be viable as the world tries to cram many decades’ worth of emissions into barely 20 years.

“Worth knowing” is really the point, as this is information shareholders need to make decisions about whether their money is invested wisely. Inevitably, all energy companies of a certain size will be expected to conduct scenario analyses, and sooner or later, comparative data will reveal that not all of them will survive the transition.

Woodside themselves acknowledged the steps they had taken to avoid stranded assets at their 2016 AGM. CEO Peter Coleman said the company needed a “clear line of sight to early commerciality”, and without mentioning any specific region, confirmed the company was “steering clear” of “long-dated” and “uncertain” petroleum basins.

This may not be good news for those of us preferring a halt to exploration altogether, but the shift in Woodside’s rhetoric in the last eighteen months cannot go unnoticed.

In 2011, Woodside dodged a shareholder resolution that called for disclosure of the carbon price assumptions it used in capital expenditure decisions. Woodside will be acutely aware of the spate of shareholder resolutions lodged with its oil and gas industry peers in Europe and the United States this AGM season.

Royal Dutch Shell plc is the largest shareholder in Woodside, which itself passed the “Aiming for A” resolution in 2015. Woodside appears keen to avoid another public stoush over what it now calls “justifiable scrutiny” of climate risks.

The company may however, find itself defending the appointment to its board of former Federal Resources Minister and current Queensland Resources Council chief executive, Ian Macfarlane.

Last week, the world’s largest investor, Blackrock, responsible for US$5.1 trillion under management, released its policy on how it intends to engage on climate risk.

For companies significantly exposed to climate risk – like Woodside – company directors will be expected to demonstrate “fluency in how climate risk affects the business”.

Given that Macfarlane’s day job is to spruik Queensland’s coal and coal-fired power stations, and the gas of Woodside’s competitors into an ever diminishing market, a potential conversation between Blackrock and Macfarlane would make for great listening.

It will be interesting to see how many responsible investors vote for such an apparently conflicted candidate, as Macfarlane’s appointment will be voted upon at their AGM in May.

Woodside’s shift on climate policy is more gradual than groundbreaking, and likely to be the result of sustained pressure from the investment community, given the absence of political pressure.

The company now acknowledges the Paris Agreement, it supports carbon pricing, and is taking steps towards better disclosure of climate risks. It’s a start, but it has a long way to go.

Daniel Gocher is Head of Research at Market Forces.