The ESG movement is upon us, backed by financial institutions whose portfolios call for green investments, younger generations’ urgent calls to protect the environment and government policies aimed at lowering emissions.
Although criticized for a lack of consistency and standardization in its application, ESG is being embraced by many in the oil and gas industry. They see ESG as a way to publicize the industry’s life-changing contributions to the world, to show its progress in the clean energy movement, and to attract young professionals who might otherwise disregard the industry as a career.
It stands for “environmental, social and governance,” and essentially, it is a set of standards that companies can use to measure their impact on society and the environment. The idea behind ESG is that is should be a measurable assessment of sustainability and investment risk.
When industry experts gathered at the International Meeting for Applied Geoscience and Energy in Houston last year, ESG was a hot topic, especially in light of reports from professional services firm EY, according to which, the majority of young people believe that the oil and gas industry causes more problems than it solves, and teens and millennials are less likely than older consumers to agree that oil and gas are good for society.
“Oil and gas has to be a critical piece of the energy mix going forward,” said Kevin Lafferty, asset team leader for Hilcorp Energy Co., who emphasized that ESG is, in a sense, a license to operate. “In order to operate and play the role that oil and gas must play in the next 30-40 years, we have to be able to demonstrate improvement on every metric of ESG. We will need access to capital and to be able to retain top talent and operate in a regulatory environment that promotes better environmental standards.”
While some might argue that the industry has always strived to improve the world on multiple levels, as evidenced by former commitments to CSR (corporate social responsibility), ESG’s predecessor, ESG is seen as a more tangible way to show how the industry is improving and why it is critical to continue exploration and production as global energy demand continues to grow.
“Getting out in front and being transparent about who you are and what you do and what your impact is – that encapsulates the premise of ESG,” Lafferty said. “We can debate about which are the most important metrics that we should be measuring or how we technically score ESG, but when we look at the principles behind it – protecting the environment, treating our employees and communities in which we operate responsibly, and then having a governance structure that reinforces No. 1 and No. 2 – objectively ESG is what we should be doing as an industry.”
Shaping the Message
It has long been a frustration for many in the industry that its positive side is rarely publicized to the public, with attention focused almost exclusively on its drawbacks, namely carbon emissions.
“Oil and gas, in my opinion, has a tremendous and positive impact on society,” Lafferty said. “If you look at any measure of quality of life, for people who have access to affordable, reliable energy, life expectancy goes up, income goes up, education goes up. We have done a lot historically to benefit the world. We need to proactively message that.”
Gail Adams, vice president of communications and external affairs for EnerGeo Alliance, underscored the need for intentional messaging: “Our industry has always been in pursuit of doing things better – whether it’s the E, the S or the G. I think it is a shame that we have made great strides, but we as an industry don’t do a great job articulating that.”
Although the term “energy transition” has become the leading buzzword, Adams believes that term has made the industry’s goal to present itself more objectively even harder.
The terms “energy evolution” and “energy expansion” are actually more accurate in shaping the public’s expectations of the future energy mix. “In a way, we create the problem because of the term we use,” Adams said.
“The world’s population is growing. We already know the demand for energy will grow. That also means the demand for petroleum and natural gas is going to grow along with all the other energy sources in the energy mix,” she said. “It’s important that we be purposeful and strategic in how we message things, because now this ‘transition’ word has really taken off when in actuality we are not transitioning. There will be an expansion and there will be an evolution.”
In terms of ESG, Adams said the industry must be realistic with the public about the world’s continued need for oil and gas.
“Every advanced nation on the face of this planet has basically gotten there (with) petroleum and natural gas,” Adams said. “I often ask people if they are willing to give up the prosperity that came with that advancement. Do other nations not deserve the same opportunity?”
Lafferty stressed the importance of being able to recognize the “positives” and “negatives” of the oil and gas industry and “really account for both sides of the argument.”
“What people are more used to seeing is the negative side – it’s what gets broadcasted. It’s the emissions,” he said. However, in his opinion, “economic prosperity and quality of life outweigh those negatives.”
“Our job is to maximize those positives while continuing to focus on how we can reduce the negatives and hopefully over the course of years we will continue to be more net-positive to the globe,” he said.
Why ESG?
Such observations beg the question about how to effectively and proactively reach the public, in light of financial institutions and younger generations pulling back their support.
Embracing ESG is the start, said Lafferty.
“It helps keep industry’s eye on the ball. If you are not engaged with your stakeholders or communities, you cannot operate a successful business,” he said. “ESG affords us the opportunity to … highlight the improvements that we’ve made and that we are continuing to make and set measurable goals. If we don’t track something, how do we improve on it?”
ESG allows the industry to clearly reveal its plans for protecting the environment and caring for communities, said Ileana Ferber, CEO of Colibri Business Development, LLC. “It gives you the license to lead, the license to act. It is how you integrate the community,” she said.
As companies begin to hire ESG personnel, Ferber stressed that these individuals should have experience in all three aspects of ESG to avoid what she called “greenwashing” – a form of marketing deception.
After so many years of being a non-consumer-facing industry that is now under attack in the court of public opinion, how does the industry step out and show its critical place in the energy mix as well as its progress toward becoming more green?
Working at the grassroots level is key, said Lafferty. Community engagement, volunteering, donating and even sponsoring local sporting events helps to get its name out there, he said. Companies should also realize the great benefit of having their employees become marketers at the grassroots level.
“We can create a company culture where people are proud to go to work every day. They are proud of who they work for. They are proud of the industry because they are equipped with the knowledge of what we have done that has benefitted society for the last 100 years,” he said. “That will echo into the communities in which we operate.”
Jonathan Arthur, executive director of the American Geosciences Institute, said the industry needs to show its human side, and that can be done through its employees.
“Companies are very, very focused on their image,” he said. However, there can be much weight carried by the messages of employees who strongly believe in their companies and careers.
Employees have the ability to discuss the need for oil and gas, the intricacies of their jobs and how companies are working to bring the world more energy in cleaner forms.
“It doesn’t have to be a message from up high,” Arthur said. “This whole conversation is very passionate and people have already formulated opinions. They are evaluating the right or wrong about the industry, and some are undecided. Keeping the message at a human level rather than a corporate level will really accomplish things.”
Lafferty’s company implemented a program that gives employees funds for donating money to a cause of their choice.
“It allows us to really make a difference in the communities where we operate,” he said. “The majority of our workforce is out in the field, so that allows them to have organic conversations about what they do for a living, and provide that message to the local community.”
People need to know how much the industry helps the communities where it operates, especially in terms of hiring locals and boosting economies.
Ferber urges people to read ESG sustainability reports to learn how the industry positively impacts others. Oil and gas operations have flooded local communities with revenue, economic growth, new infrastructure and jobs. “Oil and gas does so much more than bring electricity, it makes markets more competitive,” she added.
ESG as a Recruiting Tool
As the industry falls victim to attrition and seeks to find young talent to carry it into the future, messaging becomes more crucial than ever – especially given that younger generations have already voiced their unfavorable opinions about oil and gas. How can the industry attract young talent? Many believe ESG is the answer.
“We have to connect with young millennials and Gen Z because we are going to need that talent in the industry for years to come,” Lafferty said, emphasizing that natural gas may very well play a large role as the world seeks to lower emissions through decarbonization and electrification.
He recommended hosting company events and informationals, proactive recruiting and career fairs.
“The oil and gas industry provides a tremendous opportunity to solve complex problems, to be innovative, to come up with new ideas. The amount of technology that has increased since 1920 until now is just tremendous. That technology evolution is going to continue as we go into this energy evolution,” he said. “ESG metrics give us the ability to say, ‘Here’s the progress we have made, here are the goals we have set. It’s going to take a lot of ingenuity from where we are to where we are going and that’s why we need smart, talented young professionals.’”
Many petroleum companies are not purely petroleum companies anymore – as they morph into “energy companies” aiming to accomplish many great things, Adams said. “We need young people to come in and be a part of the solution going forward.”
The United States’ oil and gas industry employs roughly 12 million people and pays roughly $1.5 billion in federal and state taxes, Lafferty said. Other contributions can be harder to measure. Oil and gas allowed the entire manufacturing revolution to occur, and global access to affordable, reliable energy is one of the key indicators of quality of life and life expectancy.
“ESG gives us the ability to track and prove that we are making improvements,” Lafferty said. “Let’s not shy away from this.”