Amid declining returns and growing demand for cleaner energy and sustainable products, trust in traditional oil and gas business models is at risk. Key stakeholders like consumers, employees, investors and suppliers are questioning whether oil and gas companies can play a meaningful role in the energy transition. This loss of trust can be costly. On average, almost 4% of future revenue could be at risk, according to Accenture Strategy research. That could translate to an average loss to future revenue of $9 billion for large national or integrated oil companies.
Beyond obvious dollar amounts, lack of trust can have unintended consequences that impact an organization internally. Prospective employees, customers and investors may be deterred from engaging with companies that are not perceived favorably in the public eye.
Determining methods to bolster trust, confidence and reassurance will allow oil and gas companies to more successfully understand and anticipate changes to their bottom lines. Despite a company’s best efforts, it is impossible to prevent trust incidents completely. However, oil and gas companies can prepare by having a strategy that balances growth, profitability, sustainability and trust.
An ecosystem of trust to increase value
In the “Secure Trust to Secure Growth” report, Accenture Strategy found that to achieve competitive agility, the energy industry will need nearly $40 trillion in investment capital across the value chain by 2040. While half of these dollars will go toward growing core operations, a significant share will need to be allocated to new business models and diverse growth opportunities, such as alternative energies, sustainable products, electrification, integrated services and cleaner, more efficient fossil fuel solutions.
The report’s findings also reveal that investors are increasingly skeptical of energy companies’ willingness or ability to embrace business models that promote sustainability and positive social impact as well as their aptitude to adapt in the energy transition.
The coal industry illustrates what the potential financial consequences of investor distrust might look like. While coal consumption in 2040 is expected to be just a few percentage points below its projected 2025 peak, investments and valuation of coal producers have dropped dramatically. Several lenders and underwriters have stopped issuing funding or insurance for new projects, and the market capitalization of the top four U.S. producers has dropped 90% from $45 billion to $5 billion.
Firms that do not opt to strengthen trust in their core business or remake their reputations as champions of ethical, societal and environmental issues may experience a negative effect on their bottom line. Future competitiveness will require oil and gas companies to expand across value chains and deliver new categories of products and services at scale. But it is becoming clear that they cannot do it alone. They must build ecosystems of suppliers, peers, government agencies, academia and nongovernmental organizations to generate new value.
Oil and gas companies must take steps to become more transparent and prove to investors that they can compete and grow in the future. Some of the large oil and gas firms are already doing so by divesting noncore assets, shifting to less carbon-intensive portfolios or expanding their alternative energy and power initiatives.
Energy executives who wish to see sustained growth must place emphasis on securing stakeholder trust.
Companies must create a strategy and governance model that demonstrates how healthy returns can be generated in the core business through innovation and transformation as well as in new business areas through well-reasoned portfolio investments.
Oil and gas companies will be instrumental in developing a new energy system at scale. They are also uniquely positioned to develop new low-carbon, recyclable or reusable services or products. Educating consumers about the role of the industry, hydrocarbons and lower-carbon energy in the future is critical.
Historically, oil and gas companies have not been a popular place of employment for millennials. Accenture Strategy research shows that only 9% of college graduates want to work for energy companies. However, with the industry’s computing power, operational data and commitment to digitization, energy is one of the most dynamic, collaborative, tech-intensive industries there is. It also could become one of the most beneficial to society by enabling economic prosperity and employment opportunities via the energy system transformation. Energy executives should attract talent by communicating the industry’s position at the leading edge—technologically, societally and economically.
To become a trusted ecosystem partner, companies must clearly define the rules of collaboration and highlight their vast experience in managing capital intensive projects. Joint ventures, public-private partnerships and new business-to-business and business-to-consumer ecosystems can all benefit from what oil and gas companies bring to the mix.
Companies should advocate operational integrity and safety, shun unethical practices and act responsibly to meet societal and environmental needs. According to Accenture Strategy research, nearly two-thirds of consumers are attracted to companies that take a stand on sustainability. It will become increasingly important for energy companies to not just invest in alternate, more environmentally friendly energy solutions, but to become more transparent in their actions.
Companies also should measure trust deficits and quantify impacts; this is critical to mitigating corporate trust issues. Bold communication about operational and financial outcomes, carbon emissions and other pollutants, product safety, and HSE incidents also is important.
Oil and gas companies can begin to impact the future of their bottom line by bolstering trust, confidence and reassurance with their stakeholders. By focusing on some core tactics, such as becoming a force for good or increasing transparency, corporations can shift public perception and become a more modern organization. This modernization will lead to increased benefits both internally and externally.
By reshaping the perception of a company, prospective employees, investors and customers will be more likely to engage and improve a company’s bottom line overall. Trust can no longer be considered a “soft” corporate issue in the oil and gas industry. The connection between trust and a company’s value is increasingly growing stronger and is a clear variable in the equation of a company’s competitiveness, financial growth and brand success.
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2022-12-15 - The $0.20 per share distribution is payable Jan. 11 to common stockholders.