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ESG Compliance: Automating the Right Things
February 22, 2022 | Robert Bergman
In her recent article “Doing Well by Doing Good,” environmental attorney Lisa Rushton argues that while fossil fuels will continue to be a significant factor in the U.S. energy equation, how the industry contributes to the economy and society is transforming. She believes much of this will come from the growing emergence of Environmental, Social and Governance (ESG) initiatives.
“While ESG is perceived by some to be—and can be—difficult to implement, and it may seem like a profit-killer, the irony is that for most companies that implement ESG programs, including those within the oil and gas industry, it has the opposite effect,” Rushton writes.
She believes the societal implications ESG represents as an ethical imperative for all companies but acknowledges that the compliance will also be driven by financial concerns, citing a recent comment by Larry Fink, CEO of BlackRock.
“Given the groundwork we have already laid engaging on disclosure, and the growing investment risks surrounding sustainability, we will be increasingly disposed to vote against management and board directors when companies are not making sufficient progress on sustainability-related disclosures and the business practices and plans underlying them,” said Fink in a letter to investors.
In addition to market pressures to disclose, she says that oil & gas companies will be driven by climate change initiatives such as Executive Order 14008 Tackling the Climate Crisis at Home and Abroad. She sees encouraging signs among the following large integrated energy companies that are establishing ESG policies and programs:
- Occidental Petroleum Corp. has set a net-zero emissions target associated with its emissions by 2040 and has committed to reducing GHG related to their products by 2050.
- Shell Oil’s shareholders overwhelming approved a sustainability strategy that intends to reduce their carbon intensity by 100 percent by 2050.
- ExxonMobil has announced a four-prong sustainability framework that includes the investment of $3 billion in carbon capture and storage projects.
- British Petroleum is making significant investments in wind, solar, and hydrogen. Recent divestments also reduced the company’s overall emissions by 5.4 Mte, contributing to a stated goal of reducing emissions by 41 Mte by 2050.
- Kinder Morgan recently formed a new unit to explore green energy opportunities, including storing and handling liquid renewable transportation fuels such as ethanol, biodiesel, renewable diesel, and hydrogen.
Rushton believes that the solution begins with a clear understanding of where an oil & gas company now stands within the ESG framework to make realistic plans to get to where it would like to be. Here’s how she sees oil & gas industry concerns mapping to the ESG frameworks:
Environmental Issues – Key environment issues she calls out for oil & gas include recycling fracking water, monitoring pipeline leaks, clean air initiatives, reducing environmental releases and addressing non-compliance.
Social issues – Key social issues include employment practices, community engagement, worker safety, diversity, equity and inclusion, customer satisfaction, product safety and quality assurance overall improvements in data security.
Governance issues – Her key governance issues include policymaking and the distribution of rights and responsibilities among different participants in a company, including the board of directors, managers, shareholders, and stakeholders.
ESG and cyber security
Rushton includes cyber security as part of the social function, focusing on data security, which is, of course, important. But when you extend the concept to include OT security as well, cyber security underpins all ESG. Supporting Environmental initiatives will require secure controls on fracking water recycling, lead monitoring and reporting, emissions monitoring, and cost-effective regulatory compliance. Bedrock Automation, for example, has recently introduced a cyber secure, cloud-based monitoring and reporting solution that can help oil producers avoid fines of up to $25,000 a day.
On the Social side, besides the data security and privacy issues that Rushton raises above, a hacker who can gain access to a system could raise havoc and put both workers and the community at risk.
And finally, on the Governance end, strong company cyber security policies can eliminate many cyber security problems. In a recent, relevant example from the water/waste industry, a hacker was able to attempt to add toxic chemicals primarily because of lax policies on basic cyber security practices such as multifactor authentication, avoiding password sharing, and retiring unused equipment.
Guidance from API
Whether oil & gas companies adopt ESG practices by ethical concerns, profit motive, or government regulation, sustainability-related data gathering, benchmarking, monitoring and reporting will likely become an increasingly significant part of doing business in the oil and gas industry. Anticipating this, the American Petroleum Institute has published Sustainability reporting guidance that helps companies shape the structure and content of their sustainability reporting. Published in conjunction with the American Petroleum Institute (API) and the International Association of Oil & Gas Producers (IOGP), it covers 21 sustainability issues and 43 indicator categories, selected based on industry consensus.