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What does sustainability mean for oil and gas and how can the industry get better at it?
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What does sustainability mean for oil and gas and how can the industry get better it?
Around the world, consumers, governments, and businesses are repositioning their thoughts on sustainability, how it impacts them and what they can do to be better at achieving it.
The concept is front and center across all sectors of society as extreme weather patterns and U.S. and international goals to reach net zero carbon dioxide emissions by 2050 dominate the news agenda on the back of COP 26 in Glasgow last November.
In B2B, arguably no other industry is caught in the headlights of the sustainability juggernaut as frequently as oil and gas. This is an industry focused on the extraction of natural resources that contribute to greenhouse gas emissions after all.
In the run-up to, and during, the pandemic, when commodity prices were relatively low, environmentally conscious investors sought to distance themselves from oil and gas opportunities.
The situation was exemplified in a 2020 letter to investors from Larry Fink, the highly influential CEO of the world’s largest investment manager, Blackrock. It read: “We will be increasingly disposed to vote against management and board directors when companies are not making sufficient progress on sustainability-related disclosures and the business practices and plans underlying them.”
The message to the industry was clear and non-debatable: if you want the investment you have to prove you’re serious about sustainability. As a result, businesses have been tying themselves in knots to convince their stakeholders that they are sustainable, often leaving themselves open to accusations of greenwashing.
However, things are changing.
In May, three months after Russia’s invasion of Ukraine and amid skyrocketing oil and gas prices, Blackrock announced that it was likely to vote against most shareholder resolutions brought by climate lobbyists seeking a ban on new oil and gas production.
So is the time right for the industry to consider a more pragmatic approach to sustainability?
How should oil and gas companies approach sustainability, and what is sustainability anyway?
There isn’t a universally accepted definition of sustainability or guidance on what it should include.
In 1987, the United Nations Brundtland Commission defined sustainability as “meeting the needs of the present without compromising the ability of future generations to meet their own needs.” These are fine words from a highly respected organization but they are wide open to interpretation.
A sharper definition is expected from the International Sustainability Standards Board (ISBS), which was launched during COP26. The ISBS is developing a climate disclosure standard and a general requirements disclosure standard. Businesses will have to meet these standards to qualify as sustainable. However, until those standards are released (no dates have been announced) there remains no clear guidance on what constitutes sustainability.
Sustainability is often interchanged with ESG (environmental, social, and corporate governance - we wrote a recent blog on ESG). But the two are different. The recent hijacking of sustainability to mean the environment, and the wide-ranging aspects of social and corporate governance (including human rights and employee/boardroom diversity), means sustainability doesn’t accurately incorporate everything that ESG involves.
Seize the moment to create clarity
Vagueness and uncertainty present opportunities for oil and gas companies to create definitions of sustainability, supported by clear and specific goals and an understandable plan to achieve them.
Establishing a definition not only provides clarity about your objectives but also allows you to evidence the positive efforts you’re already making towards your goals.
Sure, some stakeholders won’t agree with your definition, but others will appreciate your directness. As we say in another recent blog, it’s not about being all things to all people. But it is about making sure the right people are confident enough in your offer to buy into it.
Increasingly, suppliers, partners, and customers are looking to work with companies that are sustainable in an effort to achieve their own sustainability goals - don’t get left behind by acting too late - telling a credible story is vital. Now
Communicate with confidence
While the situation in Ukraine has shifted the agenda towards the security of energy supply, reducing emissions remains the long-term global target. Oil and gas companies should be confident in discussing both.
By being assertive about their importance in delivering energy security today, defining sustainability, communicating that definition, and evidencing how their actions are supporting the energy transition they can be at the center of the debate on sustainability and not remain on the fringes of it.
Branding, and communication that brand, play a critical role in gaining stakeholder understanding of your sustainable offer. In its report ‘How Green Can Green Growth Be?’ McKinsey & Company says: “With demand for greater sustainability only intensifying, the best companies ensure their efforts are clearly communicated by balancing science (a fact-based understanding of all stakeholders needs) art (the articulation of differentiated positioning and compelling narrative), and craft (the seamless delivery of the promise through communication as well as across all touchpoints)”.
In many ways, sustainability is about communication as much as it is about policy and practice. That begins with defining the sustainability story you need to be able to tell.