Peter Bernard
May 23, 2022

The growing emphasis on ESG is a key component in the oil and gas industry, the author writes. Yi-Chin Lee, Houston Chronicle / Staff photographer

Creating and investing in an environmental, social, and governance (ESG) strategy is no longer an option, it is a necessity. Any business looking to expand operations and grow revenue must invest in a robust and complete ESG strategy. Customers, lenders and insurers are constantly asking more and more questions about ESG and, perhaps most importantly, investors have signaled that potential investments will not be made if a company does not meet ESG expectations.

The growing influence of ESG

The ESG landscape has entirely transformed over the past two decades. Investors, customers, and stakeholders have only recently begun to take an active interest in their assets’ social and environmental impact.

Sixteen years ago, only 63 investment companies were included in the 2006 United Nations Principles for Responsible Investment report for incorporating ESG issues representing $6.5 trillion in assets under management Jump to 2019, and 2,450 signatories representing $80 trillion in assets under management reported ESG-driven investments.

According to the accounting and consulting firm PwC, 80 percent of investors now report that ESG considerations are a significant influence in their investment decisions, with 50 percent indicating they would withdraw from investments that did not take appropriate action.

The growing emphasis on ESG is a key component in the oil and gas industry. ESG may even be more relevant in this industry than any other as the nation increases its focus on addressing climate change and transitioning to renewable energy.

It’s understandable that oil and gas companies fear that ESG will be a profit killer if they promote renewable energies and acknowledge the industry’s effects on the climate. It is also understandable that increased emphasis on renewable energy sources leads companies to fear oil and gas use would decline. But in fact, the opposite has occurred, and global energy demand has risen from year to year, extending the need for greater production and supply. The truth is ESG programs are helping oil and gas companies retain or grow profits and increase overall demand.

ESG reporting

Just because ESG has become a trending topic across industries does not mean that investors and assets have ESG reporting down to a science. Far from it, as the PwC 2021 Global investor survey showed that investors expressed substantial worries about the quality of information accessible to them when considering ESG goals, particularly information on their assets’ carbon footprint. The answer to the ESG reporting conundrum lies in better data.

Investors want to be able to see and learn about a business’s sustainability and ethics policies. They want to be sure that their financial contributions will not be used in ways that are detrimental to their interests. For that to happen, upstream oil and gas companies must have the proper ESG data available.

Oil and gas companies will find it incredibly challenging to accurately calculate things like carbon, fugitive and methane emissions. The solution is a unified data model, which enables a company to create a holistic view of its ESG information and provide a better accounting to investors.

A unified data model enables oil and gas companies to extract data from anywhere at any time. It can then cleanse, refine, map, display and characterize all the data in one place, making it easy for investors to make sense of all the information.

Transparency – the crucial component

Now more than ever, investors value transparency in business activities, the reporting they conduct and the rewards they anticipate. At all stages, a business must continue to inquire as to whether the ESG disclosure and data being tracked is of sufficient quality. Another key evaluation point is whether the reporting assists investors in gaining a better understanding of the company’s ESG journey toward fulfilling their objectives.

Improved reporting enables investors to more fully grasp how a sustainable business model contributes to long-term viability. It provides tools to evaluate how an ESG approach contributes to value creation and ascertains whether a company’s initiatives present the opportunity for growth or the risk of harming the people or environment they operate in.

Bottom line

Investors will back firms that adopt the appropriate ESG activities. That requires being candid about prospects for long-term value creation and the methods through which you intend to manage ESG risks, even those that are unanticipated. When you communicate to investors and other stakeholders how you intend to reset your strategy, rethink reporting, reinvent operations and push toward new results, you establish trust while generating long-term value.

Peter Bernard is chairman and CEO at Houston-based Datagration, which provides data tools to oil and gas companies.

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