An industry with impact: why ESG should be a key driver of downstream’s post-pandemic recovery
As business revamp themselves for their post-pandemic comeback, they are doing it with a conscience. ESG – environmental social and governance reporting – is the latest acronym making headlines, and catching stakeholders’ attention, across all business sectors.
Asian Downstream Insights explores ESG evolution across oil and gas operators and why high values can help boost your business.
Bigger than branding
Bigger than just a branding opportunity, demonstrating clear ESG practice could be critical to business survival. Inflows into sustainable funds rocketed by 72% in the second quarter of 2020, hitting a global total of US $71.1 billion. And according to State Street Global Advisors, at least 80% of institutional investors consider ESG a key part of their investment strategies.
The pandemic has cast an ominous shadow over the future of traditional oil and gas. Yet it is clear that it is far from the end of fossil fuels – oil demand is still predicted to rise significantly over the next few decades.
Brushing up on ESG standards could provide a much-needed support to the sector in a challenging economic climate, and major operators are catching on. The CEO of ConocoPhillips recently made a specific reference to the significance of the company’s ESG strategy as he announced a US$ 9.7 billion acquisition.
Shaping a sustainable future
As sustainability shapes the next phase of the energy transition, leading oil and gas players such as Equinor, Shell, ExxonMobil, Chevron, OMV and Total SA have pledged resources and investment towards diverse renewable energy projects, ranging from solar, wind and hydropower, and announced lower carbon emissions goals.
Showing a commitment to environmental impact is the first step to destigmatize an industry tarred by the pollutants of fossil fuels, and maintain investors’ buy-in.
Setting social standards
While the ‘E’ may be the most obvious part of the acronym for a more sustainable transition, operators who demonstrate good social governance will benefit both their ESG credentials, and their workforce. In 2020, social bonds – financing projects with primarily social objectives – were predicted to outpace green bonds in the near future, signalling a pivot away from a climate-centric sustainable finance field.
Good social governance means understanding your organisation’s culture, and its specific risks. For the downstream industry, key risks include safety management, culture and diversity, and consumer behaviour.
With HSE being a prime concern for many business leaders across the ADI network this has been the first focus for operators looking to raise their social standards. Despite some national oil companies still lagging when it comes to social and corporate governance, multinationals are leading by example. ExxonMobil has been a pioneer in adopting stricter safety standards to create a safer workplace environment.
Some social issues are industry specific, some pervade sectors. Diversity and nurturing the next generation of leaders are priorities that pervade all verticals. Many large oil and gas corporations have adopted these issues as a cornerstone of their ESG and CSR strategies, through conscious efforts to bridge the gender gap in workplaces, maintain diversity and ensure overall employee wellbeing.
Actions are showing results. Diversity in downstream is growing, with women currently making up around 22% of the oil and gas workforce. As an ageing workforce retires, actively attracting younger millennial and Generation Z workforce towards a downstream career could help nurture a self-maintaining culture of social conscience as these generations value “making a difference” higher than older generations, and are more willing to take a stand when the company doesn’t meet expectations.
Measuring positive impact
Action means little without results, and measuring these results is still a work in progress. One of the major challenges cited by ESG professionals across various sectors, is the lack of a clear set of standards, against which to benchmark ESG progress.
Standards which are industry-specific and investor-focused will be the ones that gain traction fastest.
Building a better future
In a post-COVID economic climate, it can be challenging to make ESG investment a priority. But ignoring it could come at a cost. ESG is shaping investment decisions, to the point that some institutional investors will refrain from providing capital unless their ESG requirements are met.
Integrating ESG into your business infrastructure goes further than the feel-good factor. For oil and gas companies in particular, it presents a tool for a commercial and reputation improving transition at a critical time.
The post-pandemic era is an opportunity for downstream operators to build back. ESG gives them the opportunity to build back better.