As the focus on climate change-related issues continues to grow, environmental, social and corporate governance (ESG) reporting has become a key tool for companies to communicate sustainability risks and opportunities with their stakeholders and investors.
The oil and gas industry has been the subject of significant investor and activist interest from an ESG reporting perspective, and this interest is likely to intensify with the recent release of additional and specific ESG reporting guidance for the sector as outlined below.
Sustainability Reporting and the GRI
Although recent debate has centered around the lack of a consistent and global approach to ESG reporting, the Global Reporting Initiative (GRI) Standards represent one of the most widely accepted guides to current best practices in sustainability reporting.
The GRI Standards allow any organization - large or small, public or private, to assess, understand and report on their impacts on the economy, environment and people. The GRI Standards were designed in a modular fashion with the goal of allowing organizations to develop a picture of their material topics, related impacts and how those impacts are managed. The GRI Standards are comprised of three series of Standards: the GRI Universal Standards, the GRI Sector Standards, and the GRI Topic Standards.
- The GRI Universal Standards are the starting point for GRI reporting. These apply to all organizations and consist of foundational elements, general disclosures and material topics.
- The GRI Sector Standards build on the Universal Standards and include topics that are likely to be material for most organizations in a given sector.
- The GRI Topic Standards contain disclosures for providing information on specific topics (e.g. waste, occupational health and safety, tax, etc.). An organization selects those GRI Topic Standards that correspond to the material topics it has determined and uses them as a guide for reporting.
The GRI Sector Standards are currently being developed for 40 sectors, starting with those that have the highest impact such as oil and gas, coal, agriculture, aquaculture and fishing.
Oil and Gas Sector Standard
GRI published its first GRI Sector Standard GRI 11: Oil and Gas Sector 2021 (GRI 11) on October 5, 2021. GRI 11 applies to upstream, midstream and downstream oil and gas organizations who engage in any of the following:
- Exploration and production of oil and gas;
- Supply of equipment and services to oil fields such as drilling, exploration, seismic information services, etc.;
- Transportation and storage of oil and gas (e.g. pipeline operators); and
- Refining of oil into petroleum products for use as fuels and as feedstocks for chemicals.
GRI 11 focuses on the sector's most pressing challenges for sustainable development, with guides on reporting across the following 22 material topics: GHG emissions; climate adaptation, resilience, and transition; air emissions; biodiversity; waste; water and effluents; closure and rehabilitation; asset integrity and critical incident management; occupational health and safety; employment practices; non-discrimination and equal opportunity; forced labor and modern slavery; freedom of association and collective bargaining; economic impacts; local communities; land and resource rights; right of Indigenous peoples; conflict and security; anti-competitive behavior; anti-corruption; payments to governments; and public policy.
After identifying significant impacts, GRI 11 assists companies in identifying necessary disclosures to report information about its impacts relating to that topic. For example, GRI 11 suggests that the oil and gas sector may have a significant impact on water and effluent. If a company determines that water and effluent is a material issue, then specific disclosure recommendations include, for example:
- Reporting volume of produced water and processed wastewater discharged;
- Reporting the concentration of hydrocarbons discharged in produced water and process water; and
- Reporting on how water discharge-related impacts are managed.
Implications for the Oil and Gas Sector
Sustainable investing continues to grow in Canada, accounting for more than 50% of total Canadian assets under management. Sustainable investors consider ESG criteria in investment analysis and portfolio construction; without this ESG related information, investors cannot assess the risk and opportunities. Consistent and credible reporting of ESG matters provides an opportunity for businesses to identify, manage and communicate sustainability information to their stakeholders and investors.
As the world currently consumes about 100 million barrels of oil a day, and the global demand for natural gas is expected to rise by 29% by 2040, the oil and gas sector will play a fundamental role in providing the world's energy. As the world transitions to a low-carbon future, oil and gas companies will need to develop robust ESG strategies that demonstrate active assessment, reporting and improvement upon their ESG performance.
Keeping in mind that GRI 11 was the first of the 40 GRI Sector Standards to be released as a result of the oil and gas industry having the highest perceived ESG impact, it will be important for oil and gas companies to make ESG reporting a top priority going forward. There has also been a significant rise in the number of activist investor groups targeting companies who fail to address ESG issues in a meaningful way, which further highlights the need for companies to take action on the ESG front to avoid such attention. Given the importance of this issue, the rise of activist ESG investor groups will be the subject of an additional MLT Aikins publication in the near future.
With an experienced team of energy lawyers in offices across Western Canada having significant experience in ESG-related matters, MLT Aikins is well-positioned to assist clients as they develop and implement their ESG strategies.
Energy Transition Checklist
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