Adamantine Voices

Small Steps: Part 1 — Developing an ESG Strategy

February 24, 2021 Anne Kurtis
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Please enjoy this guest post by Adamantine Energy secret weapon and ESG lead Anne Carto. One of Anne’s specialties: preparing oil and gas companies such as yours to meet the social risk resulting from Disruptor 2: environmental activism gone mainstream. –Tisha

Adamantine passionately believes each company must now narrate its existence in the energy future. And the game-changing leaders we work and talk with share our urgency: They see the need to proactively engage with the disruptions of social risk now underway. Yet we also hear this common and warranted response: Ours is a small company with limited resources — what should I do? 

There is plenty to do. And we’re here to guide you every step of the way.

This essay is the first in a two-part series to help smaller oil and gas companies throughout the value chain understand why they should do something toward an ESG strategy, the options available to them, and how to get started. 

This week: the insight and tools you will need to embark upon an ESG strategy — one that addresses the environmental, social, and governance topics that help investors and stakeholders understand your company’s risks, actions, and opportunities. 

The Why:

Small and privately held companies often assume ESG is only relevant to public companies. In fact, game-changing oil and gas leaders know that ESG:

  • Matters to private equity, too. A 2020 survey of leading private equity firms found 93% believe a focus on ESG will generate good investment opportunities.
  • Increases your access to capital. ESG is about showing your company’s ability to achieve sustainable, long-term growth — which in turn attracts investors and capital. Investors are under their own pressure to seek sustainable investments.
  • Enhances your reputation. Looking for an eventual exit? ESG topics can directly impact your reputation with stakeholders and therefore the reputational risk for potential transaction partners. In another company’s due diligence, what will your stakeholders say about you?
  • Helps you benchmark proactively. It might be scary to understand how your ESG metrics compare to your peers, but it will position you in a proactive (rather than reactive) stance.

Not enough to convince you? Check out 5 reasons why ESG is really a case of “Who Cares Wins.”

Your Options:

There are many ways game-changing leaders — even ones with limited resources — can show progress to investors and stakeholders. Here are impactful steps we typically suggest to set your company up for success:

  • Build an internal team. Any successful project involves accountability. ESG requires input from a cross-section of departments within companies. Launch a team of high performers representing your core departments. Charge them with developing your ESG strategy and empower them to bring in leadership at key junctures.
  • Assess your risk. Analyze your risks to reveal your drivers for an ESG strategy, your bespoke priorities, and the optimal timeframe to address or prepare. Consider the following drivers:
    • Expectations of your investors (one common example: publicly disclosing emission metrics by a certain date);
    • Potential regulatory and policy developments in your region (e.g., imminent flaring regulations);
    • Shifting demographics (such as the rise of the millennials);
    • Peer commitments and initiatives (e.g., methane intensity reduction goals);
    • Risks to employee retention (such as local peers embracing DEI); and
    • Community interests (one common example: water use concerns).
  • Gather metrics. Investors want transparency around your operations. Start by gathering the metrics you already measure and see how they compare to those of your peers. Some examples include freshwater use, Scope 1 emissions, Total Recordable Incident Rate, and employee diversity. This will help you understand where you need to improve and what you can highlight. From there, consider new metrics by analyzing peer reports and respected global reporting frameworks from the Sustainability Accounting Standards Board (SASB) and Global Reporting Initiative (GRI).
  • Consider a report. Companies hesitate to develop external reports because they assume they have to be deeply comprehensive and utilize global reporting frameworks. There are a range of acceptable efforts as long as you have a public plan to improve over time. Consider starting small and building up:
    • Community Impacts Report: Focus on community impacts such as employee volunteering, community investment, and best management practices used to mitigate impacts to the community. This focus helps you understand the report-building process, provides collateral for stakeholder discussions, and improves transparency.
    • Corporate Social Responsibility Report: Focus on responsible operations and company practices by disclosing metrics that show you are considering your impacts to stakeholders including employees and the broader community.
    • ESG or Sustainability Report:Use frameworks like SASB and GRI to ensure you are disclosing the metrics that matter most to investors. This type of report will include analysis of company systems to manage impacts and ESG topics.
  • Consider targets: Some investors and environmental groups argue “the meat” of an ESG strategy consists of public targets and commitments to improve ESG metrics.
    • Consider any targets you could make related to meaningful ESG topics and whether they can be tied to executive compensation.
    • Want to make a meaningful commitment? Consider a commitment to end routine flaring by a specified date.
    • When considering an emission-related target or commitment, consider working toward calculating emissions using measurement rather than estimation.
    • Think about how you can show investors and stakeholders that you are willing to go above and beyond both current and expected regulatory requirements.
  • Set a 3-year strategy: Develop a flexible strategy that allows course corrections and key milestones to keep you on track. When will you have metrics gathered? When will you release your first report? Being able to articulate your path will be helpful in external discussions.

Get Started

  • Talk to your investors. Understanding your investors’ priorities and expectations can avoid unnecessary work and resource depletion. Investors appreciate a proactive stance and an open dialogue. Bringing up ESG won’t change their course and increase their expectations; it’s already on their minds!
  • Hold a strategy session to assess your risk. Bring together your team or working group to brainstorm risks and opportunities. Provide them prompts beforehand and charge them with bringing their best ideas. Need buy-in? Have leadership frame the effort as a priority.
  • Get a handle on your emissions. For the oil and gas industry, methane emissions are a top indicator of sustainability. Understand how your emissions stand up to those of your peers as well as public commitments made by larger companies. Determine how you can get closer to reporting actuals versus estimates.

An ESG strategy should inform your overall business strategy and result in meaningful action. In Part 2 of this series, we will provide you the tools and ideas needed to construct a thoughtful decarbonization narrative using your learnings from building an ESG strategy. 

If you’re uncertain where to begin, hit reply and let’s talk about how our firm can help you navigate ESG

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