Group is developing disclosure framework based on metrics that are truly material to sustainability, plans Q1 launch of database and reporting guidance
By Jessica Whiteside, contributor
Building a repository of environmental, social and governance (ESG) data that reflects the sustainability of companies across the energy sector is a key ambition of the Houston-based Energy ESG Council.
The nonprofit council, formed December 2019, is backed by board and advisory support from the investment community and several oil and gas-related trade associations, including IADC. Its mission is to create clarity for executive teams, investors, lenders, insurers, regulators and other stakeholders about which ESG attributes are truly material to a company’s long-term viability in the energy sector.
“There is an opportunity to create a seat at the table and set the record straight about the nonfinancial attributes of the business and better define what disclosures are actually material,” said David de Roode, council Chairman.
The council is now in discussions with a university-based partner to co-manage its planned ESG disclosure database and associated research and analysis.
Mr de Roode said the council hopes to launch the database on its website by the end of Q1 this year, along with guidance for member companies on how to use the database for their ESG reporting.
The council and its research partner will use the data submitted to identify sector benchmarks and trends and support stakeholder education on ESG measures in the energy sector.
Making metrics relevant
Even companies that do not publicly disclose ESG data in a consolidated way may already provide some elements of their ESG activity to parties such as customers, bankers or regulators. Currently, there is too much variability and subjectivity in the sustainability data companies are asked to produce, said Mr de Roode. To make disclosure more relevant, the council is developing an ESG disclosure framework specific to materiality in the energy industry and its upstream, midstream, downstream and renewable subsectors. The metrics selected will form the foundation of the disclosure database and guidance documents.
“We need to create greater consistency and transparency in those attributes that we deem collectively to be material and relevant so that we can go and educate all these stakeholders about why they’re material, why they are relevant and why they should be paying attention to them so that, ultimately, everyone is on the same footing,” Mr de Roode said.
During challenging market conditions, a strong ESG program allows a company to demonstrate value creation in ways other than financial performance, said Jason McFarland, IADC President.
“Energy exploration companies can differentiate themselves to investors and capital providers by proactively implementing sound ESG policies, financial reporting procedures and disclosure,” Mr McFarland said. “As investors and capital providers become more sensitive to ESG issues, companies with strong ESG programs and reporting protocols will be better positioned to obtain debt and equity capital.”
Technological advances in the drilling sector that have led to improvements in environmental and safety performance over the past 15 years mean that drilling contractors have a great ESG story that they should share with their customers, Mr de Roode said. But those customers “have to rely on a lot of that data to come from their contractors. So, if their contractors aren’t readily tracking that data, they can’t necessarily tell their story.”
Like most of the planet, the Energy ESG Council had to tweak its plans for 2020 in the face of the pandemic. But now, Mr de Roode said, the council is moving at a “fast clip” as it continues to grow its boards, establish committees and advance its plans for the ESG disclosure database and guidance.
“Here’s our opportunity to tell our complete story about how great and vitally important the energy industry is and to do so factually and objectively,” he said. DC