The importance of strong boards in delivering net-zero and driving investor confidence

In the last of our three articles, we focus on the G of ESG.

The COVID-19 pandemic, COP 26, the UK Government’s Net-Zero Strategy, investor sentiment and societal pressure have demonstrated the need for more comprehensive ESG reporting, clear net-zero strategies, and energy transition plans. To meet 2050 targets, ESG accountability must extend to the boardroom, with factors such as growth strategy and, potentially, executive renumeration being aligned to ensure good ESG reporting and performance.

Boards need to re-think every part of their business; redesigning and redefining their strategy and operational processes to meet the needs and expectations of the market and society alike to support long-term value creation.

This, and the changing corporate mix on the UK Continental Shelf (UKCS), seeing new players entering and bringing capital for exploration, development, redevelopment, and energy transition projects, has resulted in a new obligation being placed on licensees in the OGA’s Strategy.

This new obligation requires the application of good and proper governance and underlines the importance to the OGA that companies have proper governance arrangements in place regardless of whether they are publicly or privately-owned. Governance is an important enabler of long-term corporate value and the OGA, working with the UK’s corporate governance regulators, seeks to ensure continued investment in the UKCS.

There are currently a broad set of challenges facing the oil and gas industry: rattled investors, political uncertainty, societal pressure, financial institutions pressurised by NGOs to name but a few. Public trust, investor confidence and active and open engagement around net-zero are all critical to driving and delivering the energy transition, whilst securing energy supplies for the UK.

To achieve this will require sound governance principles and practices, transparency, and accountability on ESG, and clear communication of actions. Any perceived lack of authenticity in driving the energy transition or in maintaining good governance will only add to the industry’s pressures and the OGA, as the sector’s expert regulator, intends to ensure the application of appropriate governance in meeting UKCS license obligations.

At the heart of that, the OGA will publish its Governance Guidance early in 2022. We hope, in delivering that guidance, that good governance practices at all company levels will be upheld, trust re-established, and the ever-diminishing pool of capital available to the sector safeguarded. The OGA will use its role as regulator to support and influence industry and, where appropriate, will exercise its regulatory powers to influence action.