The Importance of ESG in the Oil and Gas Industry

esg oil and gas industry

Historically, Environmental, Social, and Governance (ESG) issues within the oil and gas industry has been placed in various positions along the priority scale.

However, as ESG public policy has become more of a focus in recent years, and advances in environmental friendly technology have been made available, ESG has become a high priority of most oil and gas operators. This trend is likely to continue as the industry grows and matures. Oil and gas companies that ignore ESG will find themselves at a competitive disadvantage and subject to regulatory penalties.

In this blog post, we will take a closer look at ESG in the oil and gas industry, and discuss how recent orders by the Biden administration has impacted decisions being made by many oil and gas companies. We will also explore some benefits of ESG in oil and gas, and how it can help companies meet sustainability initiatives.

  1. What does ESG stand for?
  2. How does EGS apply in the oil and gas industry in the United States?
  3. The Biden administration 2021 ESG orders
  4. Why is ESG important in the oil and gas industry?
  5. What are some benefits of ESG in oil and gas?

Innovative ESG Oil and Gas Equipment

What does ESG stand for?

ESG is an acronym that stands for Environmental, Social, and Governance (also known as "ESG investing", “socially responsible investing,” “impact investing,” and “sustainable investing”) refers to investing which prioritizes optimal environmental, social, and governance (ESG) factors or outcomes.

Environmental

ESG issues with regard to the environment are largely driven by climate change. Many companies in the energy sector have begun to address these concerns with more efficient production methods and technology designed to reduce carbon emissions. These efforts can lead to cost savings as well as public goodwill towards the company, and ultimately value creation for all stakeholders of the business.

Social

Social criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates.  Social concerns can include such things as human rights issues, such as child labor or unfair wages. Most companies address these concerns through corporate social responsibility (CSR) programs, which may include company-wide policies that prohibit the use of child labor or encourage ethical business practices.

Governance

Governance can refer to several issues with regard to corporate management (i.e. leadership, executive pay, audits, internal controls, shareholder rights, etc.) . This can include transparency and conflict of interest policies, as well as internal structure and external relationships. For example, companies typically have internal conflict of interest policies to prevent the company's management from awarding contracts based on personal ties rather than merit.

How does EGS apply in the oil and gas industry in the United States?

The U.S oil and gas industry has been highly impacted by the growing trend toward ESG issues and compliance. Investors that identify as socially conscious are increasingly investing in companies that have made ESG a high priority within the organization.  There is also a significant increase in requests from investors and customers for environmental impact reporting.

Aside from the direct economic cost and benefits to businesses undertaking ESG initiatives, there is growing regulatory pressure on companies to address environmental issues resulting from the governments efforts to meet worldwide climate and other environmental imperatives.

The fight against climate change and "environmental justice" has been at the heart of the Biden Administration's policy goals. President Biden promptly re-joined the Paris Agreement and announced a 2030 goal for reducing Green House Gas (GHG) emissions by 50% from 2005 levels upon taking office. Getting there will require stepped-up federal regulation and enforcement of environmental protection across a wide range of industries. 

Furthermore, within days of his inauguration, President Biden signed Executive Order 14008 titled Tackling the Climate Crisis at Home and Abroad, further demonstrating his desire to establish a government-wide approach to deal with the "climate crisis" and ensuring that environmental and economic justice concerns are considered throughout the Administration's policies.

The Biden administration 2021 ESG orders

Biden has issued several executive orders directing federal agencies to implement ESG-related practices, including a key order on Jan. 27, called “Tackling the Climate Crisis at Home and Abroad." This order:

  • Requires agencies to consider the effects of federal permitting decisions on greenhouse gas emissions and climate change
  • Initiates an agency-wide push to incorporate programs, policies, and activities to promote environmental justice; and among other things
  • Encourages the development of renewable energy production on land and in water

Key recent and ongoing EPA rules and proposals affecting climate change, ESG and the oil and gas industry include:

  • A zero-emissions standard for new and existing pneumatic controllers
  • Reduce methane emissions from abandoned oil and gas wells
  • Cut emissions from existing oil and natural gas operations
  • A compliance monitoring program for new and existing well sites and compressor stations
  • Proposed performance standards for storage tanks, pneumatic pumps and compressors

It's also clear that the administration is relying on regulatory agencies (i.e. EPA, OSHA) to advance ESG policies. The recent involvement of OSHA in climate change as a workplace safety concern, with the agency preparing to implement standards to protect against heat and fire hazards, is an example of this.  The EPA is also taking active steps to advance President Biden's commitment to action on climate change.

Why is ESG important in the oil and gas industry?

According to an EPA press release from November 2021, one third of the warming from greenhouse gases today is due to human-caused emissions of methane, a potent greenhouse gas 30 times more powerful than CO2 in trapping heat in the atmosphere over a 100-year period.  Methane is a primary constituent of natural gas, and in the United States, the oil and gas industry is the largest industrial source of methane emissions.    

Increased scrutiny of the upstream carbon intensity associated with the production of fossil fuels (oil and gas) has prompted investors, consumers, and producers to seek new and innovative ways to reduce their carbon footprint and methane intensity.

Due to public and governmental pressure, some major oil and gas companies such as ExxonMobil, Total, and Shell are proactively supporting efforts to combat climate change. These efforts include reducing carbon and methane emissions in their own operations, as well as promoting research on renewable energy sources.  This has caused many other oil and gas operators to also develop short-term and long-term goals and objectives around ESG.

Historically, Environmental, Social, and Governance (ESG) issues within the oil and gas industry has been placed in various positions along the priority scale. However, as ESG public policy has become more of a focus in recent years, and advances in environmental friendly technology have been made available, ESG has become a high priority of most oil and gas operators. This trend is likely to continue as the industry grows and matures, and as the public, government and investors continue to demand action.

Oil and gas and energy companies that ignore ESG will find themselves at a competitive disadvantage and subject to regulatory penalties.  A lack of an ESG strategy will ultimately affect a company’s access to the public and private capital.  This lack of capital will become a value destroyer.

Every business must first understand its position against the ESG framework.  That analysis and evaluation will drive the development of ESG corporate goals and objectives, and ultimately policies and procedures that are tailored to these ESG commitments.  As companies meet their ESG goals and objectives value is created for the business and its stakeholders.

What are some benefits of ESG in oil and gas?

Due to the ongoing discussions and focus on climate change, Environmental, Social, and Governance (ESG) issues have become a high priority to all industries - especially to the oil and gas industry. 

On November 2, 2021, the EPA took an important step forward to advance President Biden's commitment to action on climate change and protect people's health by proposing comprehensive new protections to sharply reduce pollution from the oil and gas industry (with a focus on methane emissions). 

As a result, ESG is becoming an important factor for companies making investments in the energy sector.

Some benefits of ESG include:

  • Oil and gas companies that ignore ESG will find themselves at a competitive disadvantage.

  • Oil and gas companies are held to high ethical standards because of the nature of their business. The public has a heightened awareness of ESG issues, so these companies must take steps to ensure they are not embroiled in any negative press.

  • Companies have the opportunity to demonstrate leadership by investing in new technologies that can reduce environmental impact or improve efficiency. This can lead to cost savings as well as goodwill with the public.

  • Companies that support ESG initiatives are more likely to attract public and private capital from investors who care about environmental and social responsibility. 

  • Poor ESG policies and low priority ESG focus can impact a company's profitability indirectly by reducing revenue from the sale of products and services to customers who have strong ethical concerns about ESG issues.

  • ESG can help companies become more sustainable and efficient in the long term, and it is becoming an increasingly important factor to consider when selecting investments and partners in oil and gas.

  • ESG technologies can create direct financial returns and cost savings (i.e. eliminating the loss of natural gas to the atmosphere can lead to increased gas sales, along with the potential to monetize and value methane mitigation results though MPC's - Methane Performance Certificates.

  • ESG initiatives can help investors avoid companies that might pose a greater financial risk due to their poor environmental or other practices.

How can 12:eleven help with ESG?

Discover the strengths that the specialists in innovation and customization bring to production and process equipment, including innovative ESG solutions. Contact 12:eleven and experience quality that is reliable, efficiency that is proven and service that is unsurpassed.

We invite you to request a quote for our products or services, or to learn more about our ESG solutions including our Air Compressor packages.

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References

ESG: How it Applies to the Oil & Gas Industry and Why It Matters - https://www.womblebonddickinson.com/us/insights/articles-and-briefings/esg-how-it-applies-oil-gas-industry-and-why-it-matters

Biden’s 2021 ESG orders set stage for environment, health and safety battles - https://www.reedsmith.com/en/perspectives/energy-commodities-outlook-2021/2021/12/bidens-2021-esg-orders-set-stage-for-environment-health-and-safety-battles

U.S. to Sharply Cut Methane Pollution that Threatens the Climate and Public Health - https://www.epa.gov/newsreleases/us-sharply-cut-methane-pollution-threatens-climate-and-public-health


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We leverage the field expertise of our design and engineering group together with our diversified manufacturing capabilities to deliver a broad range of innovative surface production equipment - including Separators, Treaters, Free Water Knock Outs, Bulk and Test Packages, Indirect Line Heaters, Gas Production Units, Gas Dehydration Units, Glycol Contact Towers, Vapor Recovery Towers, Oil Stabilizing Towers.