ESG and the Oil and Gas Industry

ESG stands for Environmental, Social, and Governance Criteria. These are the three criteria investors are increasingly turning to for screening potential out investments that may pose a financial risk because of one or more of their policies. According to Oil & Gas 360 these criteria are defined as:

  • Environmental Criteria: considers how a company performs as a steward of nature.
  • Social Criteria: examines how a company manages relationships with employees, suppliers, customers, and the communities where it operates.
  • Governance Criteria: deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights.

It’s time to be proactive

EnerCom, an energy consulting firm, has spent some time researching ESG and the oil and gas industry. Here are their main four findings:

  • Conversations about ESG are increasing within the oil and gas industry
  • A growing number of investors are employing varying degrees of ESG valuation metrics
  • Water programs and VOC, methane and CO2 emissions are key issues regarding environment
  • Executive compensation and diversity are important topics in corporate governance

They also predict that if the oil and gas industry doesn’t become more proactive in evaluating and communicating ESG risks, it could transform the ESG criteria into a “Boycott, Divest and Sanction effort against the industry.” Being proactive would require adopting “a strategy that includes a louder and more harmonious industry choir of voices unapologetically addressing the reality that the current and future development, production and use of hydrocarbons is necessary to meet the food, shelter, and welfare needs of a safe, healthy, growing, modern world.”

EnerCom suggests the oil and gas industry should consider such ESG strategies in the following areas:

  • Flaring
  • Water use and disposal
  • Methane and VOC emissions
  • Carbon capture
  • Clean fuel advancement
  • Management accountability, compensation and diversity

Earlier this year EnerCom hosted a conference in Dallas on ESG and the oil and gas industry. It included a panel made up of Matthew Todd, Director of The Environmental Partnership; Chris Hughen, Associate Professor of Finance at the University of Denver; and Ken Wonstolen, Senior Vice President and General Counsel with HighPoint Resources (HPR). If you are interested in what they had to say, a full replay of the panel is available here