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ESG AND THE ENERGY INDUSTRY
ESG and the Oil and Gas Industry
ACorporate Social ENERCOM HAS CONSISTENTLY FOUND THAT: Responsibility Report (CSR) is a document that summarizes • Growing public expectations around corporate a company’s self-regulation responsibility is increasing the pressure on strategy that is designed institutional investors to invest in sustainable to guide the organization’s businesses. Moving forward, a CSR strategy actions and activities in pursuing a sustainable will become a requirement for access to lowfinancial return for shareholders, as well as a cost capital for the oil and gas industry. positive impact on the environment, consumers, • More and more companies in the oil and employees and communities. gas industry are Contained within quickly developing the CSR report are Environmental, Moving forward, a CSR strategy a Corporate Social Responsibility Social and will become a requirement for strategy and ESG Governance (ESG) benchmarks and indicators used access to low-cost capital for the oil and gas industry. benchmarks to proactively address the rapidly growing to quantify and number of institutional track a company’s progress and improvements investors that are employing varying degrees of in sustainability and are the metrics used by a ESG evaluation in their investment decision. growing number of investors to help determine the longer-term financial performance and health of a • Although Environmental metrics, like company. sustainability programs focused on water There is growing evidence to support the theory methane and CO2 emissions reductions, that companies that adopt an effective ESG have been a primary focus for investors in oil strategy can gain many competitive advantages, and gas, the first half of 2020 has heightened including a more stable investor base, lower cost investor attention on the importance of the of capital, broader access to financing, improved Governance and Social aspects of ESG, employee engagement and deeper customer such as executive compensation, Board of loyalty. These benefits are vital to companies Directors diversity and workforce recruitment of seeking to strengthen their corporate performance, underrepresented populations. maximize shareholder returns and maintain their social license to operate. • Investor Relations Officers hate filling out Over the last year, EnerCom has met with oil and gas executives and the investment community to talk about Corporate Social Responsibility and ESG. usage and volatile organic compounds (VOC), multiple, different, ESG forms.
Based on these findings, EnerCom is encouraging the oil and gas industry take a more proactive strategy regarding evaluating and communicating ESG risks and opportunities, as the failure to do so could allow the growing ESG movement to rapidly devolve into a type of “Cancel Culture” effort against the industry.
This collective industry strategy will require a louder, and more harmonious, industry choir of voices addressing the reality that the current and future development, production and use of hydrocarbons is necessary to meet the food, shelter, mobility and welfare needs of a safe, healthy, growing, modern world.
Toward this effort, the global oil and gas industry can do more to govern our companies more equitably; build a more diverse workforce; make energy production cleaner; resource utilization more sustainable; and minimize the impacts of CO2 and air emissions while maximizing the social benefit of the production and use of hydrocarbons. For individual companies, ESG strategies to consider for 2020 should focus on addressing issues like management accountability, compensation and diversity; flaring; water use and disposal; methane and VOC emissions; carbon capture; and clean fuel advancement and investment.
Lastly, whether your company is just starting to develop a CSR strategy, or farther down the path of ESG, companies need to have a comprehensive CSR communications plan to report their ESG initiatives and progress that is genuine and honest; intentional; consistent; and broadly messaged through traditional and digital channels. As an ESG strategy note, it’s important to recognize that, in general, ESG rating systems tend to reward companies with more disclosures, so a robust communication plan can improve rating agency scores and can also help create a standardized reporting structure that can help minimize the need to fill out the variety of ESG forms – which the IR team will appreciate.
About the Author – Dan Genovese is a Director at the energy consulting firm EnerCom, Inc. with experience in corporate strategy, investor relations, ESG, government relations and policy. Mr. Genovese has worked in capital markets and has experience in upstream production and downstream energy demand. Contact: dgenovese@enercominc.com
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