October 31,2019 11:00 / by Renzi Stone
As more and more Fortune 500 companies make moves toward environmentally friendly and socially conscious policies, what are the implications for the oil and gas industry? Environmental Social Governance (ESG) has the potential to change how companies are judged by investors. In the midst of a production boom, how are oil and gas companies going to respond to the dramatic financial upside this represents, alongside the growing climate crisis and calls for greater environmental stewardship as a way of doing business?
Environmental responsibility is no longer a niche concern in the global marketplace. In August, the Business Roundtable, which represents CEOs of over 200 global corporations, issued a statement that recognizes corporate values beyond those that can be gained by shareholders. Many global energy giants were represented on the list of signatories. The document commits the participants to important tenets, like valuing customers, investing in employees, working ethically with suppliers, and, yes, delivering on shareholder value. Put on equal footing is this statement: “We commit to supporting the communities in which we work. We respect the people in our communities and protect the environment by embracing sustainable practices across our businesses.”
This is just the latest example of ESG, a successor of sorts to Corporate Social Responsibility (CSR). While there is no single set of agreed-upon criteria to define ESG, the corporate world, including energy companies, are making environmental responsibility a pillar of their corporate governance. For the energy sector, this means finding a balance between current plays in oil and gas exploration and extraction with the realities of real environmental impact, and the real growing consumer concern with these issues.
Midsize to large energy companies have been forced to focus development in targeted oil and gas plays and show a manufacturing-type of return to shareholders on a quarterly basis. At the same time, they are facing pressures beyond shareholder profits. Oil and gas companies are well aware of the prominence of climate change in the consciousness of consumers.
The knowledge of dealing in a finite, non-renewable resource, along with global efforts like the Paris Climate Agreement, are clear indicators to the oil and gas industry that ESG is not likely to remain as just a polite set of aspirations for CEOs to sign off on.
The facts on the ground would seem to indicate that ESG will be a major factor in how the energy sector conducts business. But global economics is never that simple.
The Big Question with ESG: Are Investors Buying This?
Even as some investors are looking to grow their portfolios in more responsible ways, some industry leaders worry about “greenwashing” what is really happening. To avoid this, investors in oil and gas and pipeline operations are increasingly requesting better disclosure and transparency. Shareholder resolutions are regularly put forward inviting companies to demonstrate how they will navigate ESG while also delivering shareholder value, so as to avoid intentionally misleading investors or being unclear about sustainability around the fund or investment product.
Instances of greenwashing are a valid concern. Vanguard recently disclosed that a $500 million exchange-traded fund (ETF) that was established to clearly exclude gas and oil companies still had 1.5% of the assets allocated in that sector.
Investor support for climate resolutions is growing. Exxon Mobile, Occidental Petroleum, and others passed resolutions in recent years in support of more robust climate change reporting disclosure. Meanwhile, companies like Chevron, Shell, and others have begun investing significantly in clean energy projects.
We are in the early days of companies electing to use their industry expertise and proven innovation to explore new technologies outside of single plays and perhaps even jumping into cleaner technology to supply energy. That kind of innovation has been discouraged up until now because of the enormous capital risk (and capital evaporation) of the past decade. But growing clean energy innovation makes sense. The same people who discovered a 100-year supply of oil and gas may innovate newer, cleaner energy sources for the future as Wall Street interest and tolerance grows.
What Does this Mean for Energy Communicators?
ESG can be a powerful tool to tell your story OR a shovel to bury your otherwise strong company narrative. Smart companies are leaning in, but on their own terms, and telling that story in unique ways that stand out.
If this statement is true, “We commit to supporting the communities in which we work. We respect the people in our communities and protect the environment by embracing sustainable practices across our businesses” then what are you doing specifically to make this a very true statement? Very true means aligning your financial commitment with outsiders very high expectations.
I live to influence others who seek to make the world a better place. As CEO of Saxum, an integrated marketing communication consulting agency I founded in 2003, I hope to be described by my peers and critics alike as bold. I’ve built my reputation by adding value to the lives of CEOs, entrepreneurs and the kid right out of college who is looking for some advice. I’m passionate about the lives of the team I work with at Saxum, a cadre of competitive professionals who can be described as brave, original, lively and driven.LinkedIn Twitter