Oil & gas groups 'must improve ESG standards'

September 10, 2021

Oil and gas companies need to show a clear and urgent focus on addressing environmental, social and governance (ESG) concerns in order to continue to attract capital from investors, according to a new report from EY.

The global consultancy’s latest study of US oil and gas reserves, production and ESG benchmarking indicated that companies operating in the sector would likely also improve their employee and customer retention through improved ESG standards.

More than three quarters (76%) of the oil and gas companies surveyed by EY publish a sustainability or ESG report, but just 16% had these reports reviewed by an independent third party.

Overall, EY said it felt that ESG considerations were rising in importance across the oil and gas sector. However, any tangible effect on reserves and production is yet to be seen.

Integrated oil and gas companies are more likely to invest any surplus cash into decarbonisation work or alternative energy projects, EY reported, while independent companies were more inclined to reinvest in core functions or pay it out to shareholders.

Companies including ExxonMobil, Royal Dutch Shell, ConocoPhillips, Chevron and Phillips 66 have all been forced to improve their disclosures and future plans for climate change risk management this year after investor interventions.

Many groups in the sector are finally taking the hint, making significant pledges of action. ExxonMobil announced a $3 billion investment in carbon capture and storage projects over the next five years in March.

Turning to the post-pandemic environment, while the EY report found that the sector overall was recovering relatively strongly from the effects of Covid-19, it was yet to be ascertained how many oil and gas companies would be able to continue to invest or conduct business in the future. This was in the hands of investors and the companies themselves, the consultancy stated.