June 2022 /// Vol 343 No. 6)

Features

Top 4 ways oil and gas companies can report ESG goals to investors

For many companies, the biggest hurdle is not knowing how to accurately report on ESG goals to investors, in a way that directly correlates to their ROI. This article details the top four ways oil and gas companies can report ESG goals to investors.

Julia Zakhari

It’s clear that ESG initiatives are here to stay, especially if investors have anything to say about it. Recent data from the Global Impact Investing Network shows that 72% of investors plan to either maintain or increase the volume of capital dedicated to impact investing. Coupled with COP26 outcomes, net-zero carbon goals and public pressure, investors and consumers are increasingly choosing to put their money where their values lie. As a result, ESG-focused investing now exceeds $30 trillion, adding increased urgency for late adopters to join the ESG movement or risk being left behind.

The oil and gas sector is far from immune to these demands. According to a recent survey by SAP and Oxford Economics, more than 79% of energy and utilities executives stated that sustainability issues are a major priority at all stages of the manufacturing process; however, only 47% have committed to a carbon reduction or net zero emissions goal.

For many of these companies, the biggest hurdle is not knowing how to accurately report on ESG goals to investors, in a way that directly correlates to their ROI. It’s also difficult for the oil and gas industry to prioritize environmental-related initiatives in general, when most of their electricity and fuel sources are historically carbon-based.

That’s not to say there hasn’t been improvement over the last 20 years, as some major companies have made important strides in reducing greenhouse gas emissions, like energy giant Chevron, which announced new climate and sustainability goals in October 2021. Additionally, major oil companies and fuel retailers, such as Shell, are pivoting away from traditional fuel sources to “non-fuel retail” and are expanding their non-carbon options. This is occurring, as the decline in gas continues to be driven by efficiency improvements, increased regulations aimed at curbing emissions, and the rise of electric vehicles, according to a 2021 McKinsey report.

While the fuel market may be on a very slow decline, oil and gas will remain a core part of the global energy mix in one form or another, at least for the foreseeable future. To remain competitive in a world where impact and purpose is weighing heavily on consumers’ minds, it’s critical that oil and gas companies develop proactive and transparent ESG initiatives, so they can balance business needs and investor pressure.

Here are the top four ways that oil and gas companies can initiate ESG goals that satisfy both investors and the public.

  1. Reduce energy consumption via lighting. Lowering energy usage across facilities means less electricity production, which reduces environmental impact. But doing that while maintaining productivity in an industrial facility can be difficult—you can’t just shut down equipment to save on energy. One of the fastest and easiest ways to decrease energy use is to upgrade to modern LED lighting. Not only is LED lighting 80% more efficient than conventional lighting, but it also offers better visibility with higher lumens per watt, which can mean fewer LED fixtures are needed to light the same area. What’s more, it also requires fewer consumables. There are no bulbs to change out, which translates to less time needed on fixture changes and repairs.
  1. Prioritize safety. What many people often overlook is the importance of the ‘S’ in ESG. While the ‘S’ stands for social and highlights a company’s social responsibility and actions in anticipating risk, safety is a critical piece of the social framework, especially as it relates to employee health and well-being. Companies must create safer work environments for people, both within primary facilities and across the supply chain. Just as reducing pollution protects our planet’s wellbeing, reducing the risk of accidents and injuries protects the wellbeing of our people. Slip, trip and fall accidents and contact with objects and equipment are some of the most common nonfatal work injuries that result in time off work. Reducing on-site injuries can be as simple as upgrading facility lighting and focusing on overall improved visibility. Adequate lighting has proven to reduce the risk and prevalence of accidents and injury, and even[1] minimize[2] fatigue, which can aid [3]productivity. It also makes for a more invigorating environment that keeps staff engaged and responsive to safety risks.
  1. Focus on the metrics that matter. Neither consumers nor investors want projections and estimates when it comes to environmental impact—they want real, measurable proof. Energy companies can start by focusing on things like energy consumption, water management, greenhouse gas emissions and safety performance data, including data from across your supply chain. Other tangible metrics can include addressing social impacts like workforce and leadership diversity, and employee health and wellbeing.  Deploying measurable solutions like these will allow companies to prove the impact of their ESG efforts with both quantitative and qualitative data.
  2. Explore low-carbon energy sources. As consumers evolve with their demands and values, the industries they buy from evolve with them. Oil and gas companies should consider how their own operating model can transform to accommodate new business sectors, especially those who embrace digitization and advanced technology, providing increased opportunities to measure and report on ESG initiatives. Those who diversify their business models to include new revenue streams and offerings, such as renewable energy sources, electrical charging stations and biofuel capabilities, will present investors with new value propositions while maintaining a competitive edge.

We’re only halfway through 2022 and have already seen shareholders across all industries make a shift in prioritizing ESG initiatives, adding more pressure than ever for companies to set and meet objectives. And as pressure mounts, the penalties for not making satisfactory progress have become increasingly severe. As companies continue to fight inflation rates and demand for increased technology use, oil and gas companies must act now to get ahead of mandates or it may cost more in the end, both internally and externally.

References

[1] CDC, National Institute for Occupational Safety and Health (NIOSH)

[2] Centers for Disease Control, National Institute for Occupational Safety and Health 

[3] Falchi, “Limiting the impact of light pollution on human health, environment and stellar visibility”  

The Authors ///

Julia Zakhari is Global VP, Marketing and ESG for Dialight.

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