How to Tell a Real Oil and Gas ESG Program from a Fake
Environmental, social, and corporate governance (ESG) is a hot topic, especially in the oil and gas industry. Many companies are now taking some of the United Nations’ Sustainable Development Goals (SDGs) and developing ESG programs around them with initiatives to establish net zero emissions by 2050.
”We see ESG as a framework for translating goals, which above all is the energy transition, into practical and concrete actions,” said Andrea Di Lillo, global business development director for OPEX oil and gas with Bureau Veritas (EURONEXT:BVI). “In the past, we measured the oil and gas industry by the number of barrels of production capacity, the complexity of our refineries, and the integration of upstream and downstream. Now, we also review the contribution of these assets in terms of sustainability and measure them against the SDGs and now ESG.
“The ‘S’ and the ‘G’ create opportunities for oil and gas operators to identify and enact specific actions to drive progress. But the focus today is on the ‘E’ of ESG—specifically the contribution that the oil and gas industry can make toward net zero.”
Determining a legitimate program from ‘greenwashing’
Rather than providing information that could mislead stakeholders and shareholders (i.e., “greenwashing”), “ESG is about building trust and credibility,” said Shannon Lardi, partner enablement manager at IsoMetrix, a software solution developer for integrated risk management. “It does this by providing transparency into sustainability efforts and investments being made for a more sustainable future.”
The current workforce, however, may not necessarily embrace the move to ESG operations. Although many jobs are transforming to renewable efforts as part of the energy transition, cultural changes may be necessary.
“In the past, most of my discussions with clients were focused on asset integrity and reliability to deliver the required level of performance,” said Di Lillo. “But integrity and reliability are also vital to delivering energy efficiency, because an asset without the right level of integrity or reliability will risk a production shortage, a shut down, or worse environmental impact.”
You know you have a genuine ESG program “when you can ask any employee within the company what the company is doing to fulfill their ESG strategy and they can come up with an answer,” said Rebecca Greenan, senior vice president of finance and operations at Crux OCM, which uses real-time artificial intelligence to optimize semi-autonomous pipeline operations.
Where do ESG programs trend?
Traditionally, public oil and gas companies face more scrutiny than privately held firms in part because of the requirement to share financial results and annual reports. But the gap between which business model trends more commonly with ESG programs is narrowing, especially during the past decade with the shale evolution mainly in North America and increasing investor pressure for companies to develop high levels of ESG results.
“It is a common trend for IOCs and NOCs in the rise of ESG, but this is definitely driven by IOCs,” Di Lillo said. “NOCs are progressing at a different pace. Although IOCs face greater complexity, including that of local regulations in multiple jurisdictions, this also gives the IOCs valuable experience from across different countries. NOCs could have less comparative experience and also, in some cases, face different grades of regulatory requirements to develop and enact ESG policies.”
Skeptics will be skeptics
“The oil and gas sector currently lacks a level playing field when it comes to ESG,” said Paul Stockley, head of oil and gas at European law firm Fieldfisher. “This should be an impetus for wider adoption of better practices, rather than a motive for rejecting ESG.”
Most experts agree on the clarity of ESG’s value proposition—stakeholders have no interest in investing in assets with a high risk of being stranded because of increased greenhouse gas emissions. Clear, transparent, and accurate data as well as reporting is a best practice to demonstrate compliance. However, not everyone is of the same opinion.
“I think ESG is an utter waste of space and money to provide a bunch of expensive consultants with ‘good for nothing’ jobs and also to provide cover for managers of mainly public companies, as they just want to duck through this,” said Rudolf Huber, President at LNG Europe Institute for Methane Fuels based in Austria. “If someone really believed the world is going to end, let them go the full way immediately, not through some fake program, which is actually an admission that they don’t believe anything they hear. But as long as shareholders don’t rebel, nothing will change.”
Uday Turaga, CEO of ADI Analytics, a boutique consulting firm specializing in oil and gas, energy, chemicals and industrials, said he doesn’t think many of the skeptics are executives running their own companies or raising money for them. “No one wants to take the risk” of not having an ESG program in place, he said.
“If we can collectively improve upon and share these risks and opportunities, we can have an impact on communities, minimize our carbon footprint, and generate lasting environmental and social benefits for future generation,” Lardi said.
Monique Jozwiakowski is president and CEO of Houston-based MOJOZ Consulting, LLC.
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