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Oil and especially gas are set to play a continued and substantial part in the energy mix for several decades – but the industry is evolving. It's now vital to ensure operations are run as efficiently as possible from an environmental, social and governance (ESG) perspective.
Oil and gas companies must follow the same ESG principles and regulations as other companies and institutions. However, there are additional concerns and risks that the sector should address for a successful ESG strategy. For a long time, the oil and gas industry has focused primarily on a project's technical, sub-surface and safety risk, which are now easy to identify, measure and take into account during decision-making. ESG has now become equally, if not more important, than technical and sub-surface risks. On the other hand, ESG risks are less well understood, much harder to quantify, not standardised and becoming more complex due to rapidly changing regulatory and investment frameworks.
Find out about ESG considerations for oil and gas below, and how RPS supports compliance, risk management and finding greater efficiency and value.
Around the world, national governments battle to balance the need for sustainable natural resource development while improving supply security and reducing energy poverty. Responsible oil and gas exploration and production, with solid ESG principles in place, will be part of this equation.
Increasing scrutiny from primary project stakeholders, including environmental campaigners, has galvanised both public and boardroom-level opinion of the leading financial institutions. And while this applies to many industries, oil and gas companies face more pressure from external environmental and social justice lobbying groups. These groups exert pressure on both public and government opinion. Oil and gas companies need to be mindful of this mounting pressure and to put strong ESG policies and procedures in place.
In 2021, a Netherlands court ruled that Shell must cut its CO2 emissions by 45% compared to 2019 levels.
Recently, ExxonMobil lost two board seats to climate activist investors who will increase pressure to implement a low-carbon strategy faster.
At Chevron, 61% of shareholders voted in favour of an activist proposal from the Dutch activist group Follow This to cut carbon emissions.
Oil and gas operators are stepping up to today's multi-faceted challenges, integrating ESG into their businesses to comply with changing regulations, secure capital during fundraising, identify and manage risks during operations and capitalise on opportunities.
The newly formed International Sustainability Standards Board (ISSB) is a prime example of how ESG will influence finance and reporting
These standards aim to make it easier for investors and other capital market participants to compare sustainability-related disclosure against a global baseline. The ISSB provides standard terminology, measurement, and metrics for sustainability disclosure standards that are understandable, enforceable and accepted worldwide.
As new standards are being released and older ones are updated, exploration, production and operating companies will increasingly need to provide verified data representing actual ground operations. Reports will be audited against measured findings from the field or site by third parties to ensure accuracy and validity.
This trend in reporting standards points the way to a future where ESG claims, data and reports will be scrutinised with the same rigour as a company's financial claims, data and statements.
Financiers have responded and addressed their role in the net zero transition with more robust checks and measures of oil and gas projects. They require that international best practice standards for ESG, such as Equator Principles 4 (EP4), are met.
Currently, there are 137 Equator Principles Financial Institutions (EPFIs) from 38 countries. These financial institutions now require an assessment of an oil or gas project's potential adverse human rights impacts.
EP4 also enhanced requirements around Free, Prior and Informed Consent (FPIC), a specific right that pertains to indigenous peoples and is recognised by the United Nations Declaration on the Rights of Indigenous Peoples (UNDRIP). Projects with impacts on lands and natural resources subject to traditional ownership or under the customary use of Indigenous Peoples, requiring relocation of Indigenous Peoples, or significant effects on critical cultural heritage will require a more thorough and independent consultation process.
For projects located anywhere where combined Scope 1 and Scope 2 emissions are greater than 100,000 tons of CO₂ equivalent annually, a Climate Change Risk Assessment that considers relevant transition risks and analyses alternatives with less intense greenhouse gas emissions is now required.
Read more about how ESG factors are influencing finance on oil and gas projects.
An acquisition or merger will inevitably impact the ESG profile of the parent company. One mistake would be to only focus on the technical risk of an asset at the expense of ESG risk. A full assessment of an acquisition's ESG profile can uncover areas of risk or identify additional value. These can then be confidently factored into decision-making processes.
One specific risk oil and gas companies face is in assessing abandonment liabilities and decommissioning projects, where ESG needs to be considered in addition to the financial and operational perspectives.
Read more about ESG factors in M&A transactions here.
RPS managed land access on this decommission project and secured all relevant permits from municipal, provincial and national regulatory bodies. First Nations Consultation requirements were met by providing the required assessment and notifications. Additional approvals were gained, assuring that fish and wildlife would be protected and any environmental risk mitigated during the project.
The oil and gas sector has understood that it needs to work with local stakeholders to ensure a social licence to operate in communities where it explores, develops and produces. A well-planned and strategic approach to the social licence to operate can protect millions of dollars of infrastructure investment over the long term.
In many jurisdictions, local concerns linked to non-technical performance can cause capital project delays. Depending on the region, labour disputes, local land issues, activist shareholders, and environmental lobbies can cause delays, increase costs or even shut down a project. In this context, ESG measures can be considered a risk management tool for protecting your capital investment. Gaining a social licence to operate locally by conducting social research, implementing positive stakeholder relations and deploying an effective communication plan can go a long way to avoiding conflicts arising with stakeholders.
This pipeline project was highly opposed by the public and complex in terms of planning, engineering, environment and communications. The local community was strongly opposed to the proposed route. RPS developed an integrated community engagement programme and managed the public consultation for over 18 months. This input from local stakeholders informed the route selection process, which was ultimately approved and constructed.
We have developed deep ESG expertise for the oil and gas sector through decades of experience supporting clients to develop, implement and monitor environment, social and governance practices and policies. We understand the ESG challenges to oil and gas exploration, production and distribution. Our multi-disciplined approach draws on the expertise from our advisory, technical, communication, project management, consenting, training, water, oceans and coastal, and environment teams.
Our commercial and technical specialists have advised governments and oil and gas clients on portfolio optimisation, mergers and acquisitions from an economic, operational and ESG lens, delivering a 360-degree view of an asset, company or investment. We use our expertise to provide Competent Person's Reports (CPR) to help our clients gain access to finance on the capital markets or to support merger and acquisition (M&A) activities.
RPS delivered an Environmental and Social Impact Assessment (ESIA) for the National Oil Corporation of Kenya before a seismic survey. The project was in an area of heightened social and environmental sensitivities. RPS worked with the local communities, conducted stakeholder meetings with each of the Maasai tribes within the survey area, presented the project, and recorded any concerns.
We understand the oil and gas business from upstream to downstream and from every stage in the asset lifecycle.
We liaise with our clients to conduct a gap analysis of their existing ESG strategy. We determine what must be in place, identify opportunities for improvement, prioritise objectives, monitor implementation and report on progress.
To prepare your ESG strategy, we dive in to understand your particular business plans, challenges and opportunities. We benchmark your current ESG strategy and metrics against others in the oil and gas industry.
We've worked with stakeholders from around the globe to address ESG concerns as part of impact assessments for oil and gas clients.
We identify your key stakeholders and the issues of most importance to them. When applicable, we conduct social research using a variety of methods. We perform a gap analysis service to pinpoint where they are exceeding, meeting or falling below expectations.
RPS supported a national energy company in Africa in developing their ESG strategy. Working closely with the board and management teams, we created a strategy that would prepare the business for the challenges ahead, incorporating environmental, social and modified governance considerations into their business model.
With a thorough understanding of what issues your stakeholders find important and the material issues that will impact the business, we develop a set of ESG factors on which to focus. These are areas that are material to stakeholders and where additional value can be extracted or ESG risk can be addressed.
In collaboration with your internal ESG representatives and management team, we further define and refine focus areas, establishing a development plan. We identify ESG key performance indicators (KPIs) and metrics. We support our clients through ESG training and capacity building explicitly designed for the energy industry.
ESG strategies can be challenging to implement. RPS can support or become your in-house ESG team across a wide variety of issues.
Read more about our ESG consulting process, based on 50 years of environmental consulting.
We implemented training and capacity development programmes as part of this UXO survey and clearance project for the Arabian Gulf Oil Company (AGOCO). By working in close collaboration with our local partners and tribal leaders, people from the region benefited economically from employment. RPS delivered quality assurance and quality control (QA/QC) officer training for seven AGOCO personnel in Tunisia. Training included an introduction to mine clearance and UXO operations, risk assessment, mapping and recording, and QA and QC inspections surveying. In addition, we trained 16 local UXO spotters.
ESG compliance is no longer a box-ticking exercise. A desktop study of policy will not measure what is happening on-site.
Our field investigators and supervisors have worked in most major oil and gas producing countries. With boots on the ground, RPS can monitor for ESG policy breaches that could have serious repercussions, both financially and reputationally. RPS can back up any audit or review with in-person site assessments conducted by people with experience with oil and gas operations.
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