Investors, Regulations Drive Oil and Gas ESG Disclosures

oil drilling with the sunset behind it.

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by | Apr 26, 2022

Oil and Gas ESG

(Credit: Pixabay)

More oil and gas producers in the United States are disclosing their ESG efforts as pressure from investors grows, as well as a result of pending SEC regulations, according to a report from Haynes and Boone and EnerCom.

All but one of the 30 companies that were surveyed for the Oil and Gas ESG Tracker say they have publicly disclosed ESG policies, which is up from 21 from the spring 2021 report. While the exact ESG elements disclosed and where the information is published varies, the report finds the increased information has acknowledged investor concerns while helping justify reinvestment in the industry.

Of the producers surveyed for the report, the top 10 institutional holders have $71 billion invested in the group, which is more than double the summer 2021 report. With that increase in funding, investors are utilizing varying levels of ESG valuation metrics and are frustrated by the quality of third-party analytics providers, thus relying on disclosures from the company, according to the report.

This has increased specific ESG information reported on the companies’ operations, with investment in companies with more ESG disclosures likely to continue. That has also led to companies giving executives incentives such as linking compensation to hitting measurable ESG targets, the report finds.

The SEC decision in March that it would start requiring publicly traded companies to disclose Scope 1, 2 and 3 emissions among other climate related standards is also increasing those in the industry to disclose ESG progress. However, most are currently reporting the information on their websites and not directly with the SEC.

The report also finds that the SEC rules will also push the companies to make disclosures in compliance with certain principles of the Transparency and Consent Framework and SASB reporting metrics. The production and use of oil and gas is estimated by CDP to account for half the world’s greenhouse gas emissions associated with energy use, further illustrating the need to track direct and indirect emissions in the industry.

As more oil and gas companies increase their disclosures, less than a quarter of them have revealed net zero emissions targets, according to the report. Nearly half of the 24 companies publicly disclosing greenhouse gas emissions are targeting both Scope 1 and 2 emissions with 8% also disclosing Scope 3 emissions.

The report says of those working toward net zero targets, many are doing so through technology improvements, operational efficiencies, and the purchase of carbon offsets. Most of the disclosures report on current ESG goals in addition to past results.

As ESG reporting grows in significance across industries, tools and technologies to improve those efforts have attempted to keep pace. For example, a sustainability management system was recently released by Wolters Kluwer and Deloitte is investing $1 billion in a massive network to help companies develop strategies to speed transitions and meet targets, including disclosure and regulatory requirements.

The oil and gas survey finds most respondents are motivated to stay on top of ESG disclosures as respondents fear the risk of perception and the impact of operations as the result of failing to address ESG impacts.

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