Environmental responsibilities and social obligations have become crucial to investors worldwide. These factors also influence the flow of investment in oil and gas projects. Therefore, ESG consulting facilitates effective monitoring of compliance levels of such projects. This post describes the ESG trends in the oil and gas industry.
What Is ESG in the Oil and Gas Industry?
ESG means the environmental, social, and governance aspects of operating a business, affecting how investors select a stock to buy. So, corporations and fund managers leverage ESG consulting to quantify business performance regarding the identified metrics.
For example, oil transport poses the risk of polluting oceans and damaging biodiversity. So, companies in the oil and gas industry can use ESG criteria to minimize such risks. Doing so will improve their ESG ratings.
An ESG score or rating system evaluates how well a company progresses toward sustainable development goals. Therefore, most sustainability audits rely on ESG data solutions to calculate their performance in each ESG pillar.
The Three Pillars of ESG in the Oil and Gas Industry
1| Environmental Pillar
ESG includes metrics like pollution control, carbon emissions, and biodiversity in the environmental pillar. Moreover, the inspections analyze the usage of conventional resources through ESG data solutions.
The oil and gas industry extracts and refines petroleum resources to provide combustible fuel, synthetic polymers, petrochemicals, and natural gas. However, inefficient refining technology leads to higher carbon emissions. Therefore, ESG ratings decline.
ESG consulting reports can identify such risks and recommend solutions to address them promptly. Consider how natural gas reduces greenhouse gas emissions (GHG) compared to burning coal or oil. So, prioritizing natural gas can help mitigate carbon risks.
2| Social Pillar
Petroleum refineries, oil exploration, and petrochemical processes create many employment opportunities across all disciplines. After all, the oil and gas sectors are the most capital-intensive and economically significant components of the future of the global energy supply.
Therefore, ESG data solutions focus on labor rights and workplace safeguards in the oil and gas industry. The social pillar of ESG consulting reports observes employee relations across the following metrics.
- Multicultural respect and fair wages,
- Inclusion and preventing discrimination,
- Women empowerment and punishing child labor,
- Personal protective equipment (PPE) and enrolling employees in insurance policies.
3| Governance Pillar
Oil markets are often volatile, but this situation does not mean that irresponsible financial accounting is acceptable. ESG’s corporate governance requirements in the oil and gas industry demand transparency in producing, financing, and exporting petroleum resources.
Artificial interferences in the oil markets damage financial stability and consumer confidence due to ripple effects across all businesses. Furthermore, oil and gas prices are closely related to retail inflation and the total cost of living.
Investors and business leaders can estimate governance quality using ESG data solutions to prevent manipulation of oil markets. Also, companies must respect taxation and legal compliance in their import-export trades.
ESG Trends in Oil and Gas
1| Environmental Justice
Several governments have agreed to reduce carbon emissions by 2030, and the Paris Agreement is evidence of the same. So, the new regulatory frameworks aim to manage the climate crisis through GHG emission reduction. This trend, known as “environmental justice,” implies more regulation of the energy sector. It means the oil and gas industry must comply with ESG criteria.
2| Performance Monitoring via Regulatory Agencies
Enforcing new environmental protection laws will leverage the current pollution control boards (PCBs). Also, the social metrics in ESG consulting might integrate legal bodies like the occupational health and safety administration (OSHA). Therefore, the oil and gas industry must prepare for the increase in disclosure documentation and inspection protocols.
Other ESG trends in oil and gas include the following risk factors.
- Businesses switching to renewable energy resources get more financial incentives.
- NOC (national oil companies) are immune to competition from international firms.
- Greenwashing presents oil and gas industry in a positive light and allows them to use sustainability compliance as a marketing tool. However, such acts reduce trust in the industry.
- Many courts, investors, and activists have pressured the energy sector to redefine the emission reduction goals more ambitiously. Still, some companies might fail to achieve these optimistic goals, creating tension between stakeholders.
Conclusion
The planet has been suffering due to humans and their industrial activities, but modern technologies help us reduce our reliance on inefficient production methods. The oil and gas industry must innovate its operations to adapt and thrive in the increasing ESG-first landscape.
Clean energy technologies are still incapable of supporting the global population. Meanwhile, the energy demand and consumption of conventional fuels grow each day. Therefore, oil and gas businesses must masterfully implement reliable ESG data solutions to handle the external pressures of compliance.
A leader in ESG consulting, SG Analytics supports oil and gas companies through analytically acquired industry trends and sustainability benchmarks. Contact us today if you require comprehensive insights into how to enhance your ESG compliance levels.
