The engine that powers sustainable organisations
The energy sector is going through a reckoning as it navigates the pressures of the energy transition. As both a contributor of climate change and facilitator of a low carbon economy, the sector has a delicate balancing act to manage as the time of peak oil arrives. With investors and lenders interested in the way oil and gas companies are responding to the physical and transition risks of climate change, the industry’s greatest ESG challenge is undoubtedly related to the energy trilemma.
ESG reporting for the oil and gas industry faces many of the same challenges as other industries: Insufficient data, poor disclosures, and lack of comparability across the industry are obstacles to reporting transparency.
For an industry characterised by high exposure to climate factors, the number one ESG performance indicator is climate-related. Transition strategies, risk assessments, and GHG emissions will be important. The two main challenges in reporting climate-related information are:
Common ESG topics in oil and gas are focused on environmental risks (both the innate carbon emissions and lower probability but higher risk pollution events such as leaks and spills), safety risks such as offshore safety, and governance of these risks.
A wide range of players form the upstream and downstream ecosystem in oil and gas. Capturing relevant disclosures and the many data points across the value chain takes an enormous effort. Depending on which stage of the value chain you’re at, certain activities or new technologies may be areas of public or material interest. For example, fracking and oil sands may present more challenges during reporting due to their relative newness.
Another challenge is selecting the type of data. Providing both absolute and normalised data (or intensity measures) gives a fuller picture of ESG performance. For example, GHG intensity informs investors about emissions relative to production output.
This gives an idea of how efficiently emissions are being managed in production. In contrast, absolute GHG emissions could be meaningless without context. Normalised data is especially useful for comparing a company’s different operations and inter-company performance.
Companies often shy away from reporting the ESG challenges they face. But presenting only good news is misleading and could be considered a form of greenwashing. Being open about your ESG challenges is an opportunity to demonstrate the steps you are taking to improve and your commitment to ESG.
Continue reporting on the relevant matters material to the industry. Sharing information about your targets and progress builds the stakeholder's trust in your company’s ability to adapt to a rapidly evolving world.
International Petroleum Industry Environmental Conservation Association (IPIECA) and International Association of Oil & Gas Producers’ (IOGP) reporting guidance are incredibly useful resources for industry-approved standards. They include performance indicators, normalisation factors, and boundary settings, in addition to other protocols. Meanwhile, other recognised frameworks such as the TCFD recommendations provide guidelines on climate reporting and even a sector-specific guide for energy.
Boundaries between upstream and downstream activities need to be clearly defined as they often have completely different value chains and processes. The process should also cover ESG-related risks and opportunities in Joint Venture (JV) operations where material. Technologies to track and manage the data can help with ensuring the information collected from these sources are up to standard.