ESG Slowly Seeping Into Oil And Gas Corporate Structures
Environmental, social and governance (ESG) risks are coming to the forefront in the oil and gas industry as companies across the supply chain work to successfully navigate the changing energy landscape. In late 2020 the Daily Oil Bulletin, in partnership with law firm Bennett Jones, surveyed executives and ESG professionals to understand the progress being made in integrating ESG into business operations, and what is needed to push ESG forward. This five-part series outlines those survey results
Canada’s energy industry is making progress in integrating environmental, social and governance (ESG) factors into its corporate structures, management systems and operations, according to a new survey of industry executives and ESG professionals recently completed by the Daily Oil Bulletin.
The survey, conducted in late 2020, shows the majority of energy companies are onboard with integrating ESG into their business, but challenges remain in moving from intentions to full integration.
Almost 80 per cent of survey respondents reported their organization is very supportive or extremely supportive of advancing ESG initiatives internally. However, almost half said they are challenged integrating or aligning ESG with other company priorities.
“Given the current environment, this isn’t surprising,” says Bemal Mehta, Senior Vice President, Energy Intelligence, JWN Energy. “The difficult business environment in 2020 pushed many companies into survival mode. The focus on managing COVID-19 has negatively impacted ESG aspirations.”
There is a substantial disconnect between how executives view their organization’s success at aligning ESG with corporate strategy compared to those further down the management chain. Almost 60 per cent of executives said ESG principles were mostly or completely integrated with company priorities. Only half of directors and senior managers and 30 per cent of middle management shared this perspective. Almost two-thirds of ESG professionals on the frontlines said environmental, social and governance principles were well integrated into corporate strategies.
“The professionals engaged with environmental and social issues daily see progress being made in the real world,” says Mehta. “Many executives are actively integrating E&S risks into corporate governance so they also see progress. Those in senior and middle management roles, however, are the employees responsible for ESG implementation. The survey results show either they believe implementation is happening too slowly, or they lack the tools to drive ESG within their areas of responsibility. If it’s the latter, many of these organizations may need to work on building capacity, including more education and training on ESG.”
While the vast majority of survey respondents said their organization was very or extremely supportive of integrating ESG principles into their business, there was less agreement on what environmental, social, or governance issues should take priority. One-third of respondents said their organization was only sometimes or seldom aligned on what ESG issues they should focus on.
“This is being driven by the need to address the ever growing needs of both external and internal stakeholder viewpoints that often conflict. For example, the investment community is focused on how well the company is managing environmental and social risks that could have a material impact on financial performance, and this is fundamental to business success. Layered on top of this is increasing pressure from governments to address ESG issues and increasing regulatory compliance and reporting requirements. Local communities also have ever-changing needs that must be addressed as circumstances change that while important are not material risks,” explains Mehta. “Internally, many employees have environmental and social expectations from the organization that go beyond risk management. Many younger employees like Millennials and Generation Z want to work somewhere where they can make a difference in the world and they are willing to vote with their feet if the company isn’t meeting those expectations.”
In all but the largest organizations it is very difficult to address all these priorities simultaneously, he notes.
"Energy companies recognize both the risks and the opportunities that come with ESG," says Vivek Warrier, partner and co-lead of the national energy industry team at Bennett Jones. "Companies in the energy space know they are being subject to disproportionate scrutiny in this regard and many have used this as an opportunity to demonstrate their ESG performance and better define and express their own corporate values. We’re seeing more and more sustainability reporting in the energy sector as companies work to embed ESG throughout their operations. This is critical because, at its core, ESG metrics are increasingly a means by which stakeholders measure overall corporate performance."
There are lots of outside resources leadership can access to help prioritize ESG issues and align stakeholders around those issues, says Mehta.
“Companies need to do their research,” he explains. “There are dozens of investor surveys and reports that can help identify issues. Use the voluntary ESG guidelines, standards and frameworks. There are also tools available to build out stakeholder consultation plans and to help prioritize issues. If you already have a strong stakeholder consultation plan there are consultants that can help fine-tune it. Using these tools may not get you to the point where this is total alignment on what ESG issues need to be addressed but they should get you closer.”
The survey results show the majority of company leadership teams are fully engaged in making ESG work in their respective organizations. Almost 70 per cent of ESG professionals reported their company leadership was very or extremely accessible in helping them address their concerns.
Despite the financial stress of the economic downturn and COVID response, two-thirds of respondents said they often or always had the resources needed to deliver on their organization’s ESG strategy. But gaps remain that are hindering progress.
“A lack of available data and standards to measure internal progress and to benchmark against competitors was a common concern among the survey respondents,” says Mehta. “Another key issue was the need for technologies to address issues once they are identified. Many respondents also said there is a lack of talent with the right skillset to effectively integrate ESG into company operations.”
The Daily Oil Bulletin ESG Executive & Professional Survey was sponsored by Bennett Jones and completed from Oct. 15 to Nov. 20, 2020. There were over 150 responses, with 35 per cent executives/board members; 30 per cent senior managers/managers; 25 per cent ESG professionals and specialists; and the remainder consultants and related occupations.
Fact Box: What industry said:
- In this post COVID-19 challenging environment, it is difficult to make spending on ESG a priority when cash flow is minimal and solid, safe operations are first and foremost.
- We are well aligned in wanting to advance in all ESG areas but less aligned in prioritizing E&S issues.
- Our company is well aligned on GHG emissions but misaligned on stakeholder relations.
- We have just identified our key ESG priority areas and [are] about to communicate it to our organization.
- We need to stop thinking about reporting and think about building and integrating the program — reporting is an output of all the integration and alignment.
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Bennett Jones is one of Canada’s premier business law firms and home to more than 400 lawyers and business advisors. With deep experience in complex transactions and litigation matters, the firm is well equipped to advise businesses and investors with Canadian ventures and connect Canadian businesses and investors with opportunities around the world.
Bennett Jones provides complete ESG-related advice using our deep knowledge and wide experience garnered from advising clients on domestic and international business law relating to corporate governance, securities disclosure, corporate reporting, environmental law, climate change, indigenous relations, project development, supply chain management and crisis management. For more information, please see the Bennett Jones ESG practice page.