Despite a rebound in oil and gas prices, the upstream sector has started 2022 facing peak uncertainty, according to analysts.

In its Global Upstream Outlook 2022, Wood Mackenzie points out the upstream industry must respond to the implications of the pledges made at COP26 and governments must set a course for the industry to follow.

Here is where the role of ESG comes into play.

Transparent ESG reporting will help heavy carbon-emitting sectors like offshore energy achieve their climate goals and gain improved access to financing, according to Aishwarya Iyer, ESG Manager at RightShip, the world’s biggest third party maritime due diligence organization.

Hart Energy: Can you discuss the growing importance for offshore industries to prove their ESG credentials?

Iyer: It is evident that conventional hydrocarbon-based business models are rapidly transforming as every participant seeks to address climate change. Stakeholder pressure is playing a key role in incentivizing players to disclose sustainability practices with financial institutions demanding clear ESG disclosures in order to incorporate such risks into traditional investment and credit risk assessments. 

Transparent ESG reporting will provide heavy carbon-emitting sectors like offshore energy with improved access to financing, better loan terms and support a much-needed upliftment in reputation as the need to combat climate change and conserve marine ecosystems intensifies.

Hart Energy: How is RightShip helping companies achieve their ESG and climate goals?

Iyer: RightShip has a robust suite of products that allow shipowners, charterers, ports/terminals, financial and insurance sector players to track and benchmark their emissions performance, operational efficiency and crew welfare.

We cover various relevant ESG elements through our GHG Rating and Carbon Accounting tools (Environmental), Crew Welfare (Safety) and Safety Score that is focused on operational safety (Governance elements).

Customers can assess their emissions profiles and formulate effective reduction strategies. These offerings are designed to track demonstrable progress and support customers through their sustainability journey. We strongly believe that you can only reduce what you can measure. 

Hart Energy: The ‘E’ of ESG is gaining significant attention in the oil and gas industry. Tell us more about Scope 3 emissions measurement and reporting challenges and how tackling them will be key to the oil and gas industry’s green transition.

Iyer: Indeed, the ‘E’ of ESG is directly related to climate change and is currently the most material ESG risk. Measuring and reporting Scope 3 emissions remains challenging as it intends to account for emissions across the supply chain. Estimating Scope 3 emissions is meaningful only if it can facilitate understanding of a company’s journey towards emission reduction and ultimately achieve their ‘net zero’ goals. 

Even as business models transition and evolve, decarbonizing the whole value chain necessitates collaboration among participants, including shipping. Sustainable transport is crucial as almost 25% of energy-related GHG emissions originate from transport and these emissions are projected to grow over the years.

Scope 1 emissions for shipping forms part of Scope 3 for Oil & Gas players whose products are transported via the ocean, predominantly on tanker vessels which form about 40% of the transactions RightShip engages with. Moreover, transparency on Scope 3 emissions is a key part of RightShip’s Carbon Accounting tool.

Hart Energy: Can you discuss the often overlooked link between sustainability and crew welfare, when it comes to the ‘S’ in ESG? 

Iyer: The importance of preventing and controlling marine damage from oil spills in order to protect marine environments is well documented and rightfully so. However, less emphasis is placed on human rights, including mental health of seafarers as the link to sustainability is less obvious.

Focus on “People” is a key pillar of the UN Sustainable Development Goals (SDGs) with pronounced focus on aspects of human rights like access to clean water and sanitation, appropriate working conditions, adequate rest hours and mental wellbeing. Crew welfare is critical in promoting higher productivity, staff retention and reducing risks of incidents—all of which are key to sustainable growth of an operation.

RightShip provides a code of conduct with clear definitions of best practice within care for seafarers. Ship owners and managers may assess their own commitment against defined goals, which so far over 125 companies have elected to do. 

Hart Energy: What are some of the significant untapped opportunities in the ESG space?

Iyer: Maximizing the value from ESG reporting and the role of digital transformation in simplifying data gathering are relatively untapped opportunities within the fast-growing ESG space. 

I think the role of ESG reporting will evolve from simply guiding investment decisions to playing a critical role in influencing such decisions.

Also, as internal and external stakeholders demand clear and transparent information in this area, ESG reporting will need to go beyond just showcasing numbers and evolve into a cohesive story that incorporates elements like demonstrated efforts in workplace safety, supporting local communities, social responsibility, responsible sourcing and meaningfully reducing carbon footprint, among others. Effective use of digital tools will be instrumental in data analysis to support this reporting.

RightShip recognizes this and our solutions covering Carbon Accounting, Maritime Emissions, Safety Score and GHG Ratings effectively harness the potential of ‘digital’ in the meaningful use of data.

Offshore