From increasing disclosures to stronger investor sentiment, the past year saw an expected upward growth of ESG initiatives taken by the oil and gas sector. While many are calling 2021 the year of ESG investing, there’s little debate left about ESG now being core to the energy business.
So, what does 2022 and beyond hold for ESG?
“One thing is clear now—the ESG theme is here to stay,” said Nick Volkmer, vice president of ESG and renewables at Enverus.
Specific to the oil and gas sector, Volkmer said methane is going to take center stage this year with several major methane management projects set to launch in 2022.
“This year, we will see a lot more concrete and specific ESG plans take hold…Exxon Mobil announcing its net-zero plan toward the end of last year for its Permian assets is a very good example of this,” he said.
Volkmer also pointed out that the increased focus on ESG transparency from investors and stakeholders has significantly improved the data quality of ESG reporting from oil and gas companies—a trend that he expects will continue in the coming years.
“If you look at the quality of ESG and sustainability reports that came toward the end of 2021 compared to those published in 2019, you can see that the level of disclosures has improved…it’s still not perfect, there is still a lot of work to do,” he said adding: “I think that will continue improving.”
Alisa Lukash, vice president of shale research at Rystad Energy, said oil and gas companies are increasingly focusing on new technologies to achieve ESG goals.
“Shale companies are trying to decarbonize as much as possible…For instance, on the leak detection side, companies are looking at technologies to detect it faster, on the pressure pumping equipment, more companies are looking at electrify operations,” Lukash noted.
“There tends to be a misconception that ESG somehow correlates to drags on returns. Actually, the opposite is true,” noted Angie Gildea, national sector leader of Energy, Natural Resources & Chemicals at KPMG.
“There have been more than 2,000 independent studies on the impact of ESG on equity returns that find that companies that have strong ESG propositions actually correlate to higher returns,” Gildea said.
She added that not only do companies with strong ESG propositions have better top-line growth and reduced downside risk, those with strong equity, diversity and inclusion programs outperform their peer set.
Last year, about $130 trillion of private sector assets was committed to achieving net-zero greenhouse-gas emissions including high-profile endorsements from BlackRock’s Larry Fink and Jane Fraser of Citigroup.
Gildea expects this number to grow in 2022.
“We will continue to see more investments in ESG, primarily in the cleantech space,” Gildea said.
“I think the interesting thing to look out for in 2022—and this is where the supply shortage comes into play—is what’s the balance between focusing around lower carbon and increase in supply,” she continued. “Will companies be penalized for increasing production and drilling in areas where maybe investors might have hoped for a lower carbon footprint?”
Jump to a topic:
- Key ESG trends (0:56)
- Net-zero goals: progress and opportunities (6:23)
- Balancing the ESG equation (10:23)
- ESG reporting: what’s next? (15:32)
- ESG investing peak? (20:55)