Oil and Gas Sector Releases New Sustainability Yardsticks

Do the revised reporting guidelines for the oil and gas industry go far enough?

Last month IPIECA, the global oil and gas industry association for environmental and social issues, along with the American Petroleum Institute (API) and the International Association for Oil and Gas Producers (OGP) released their revised guidance on corporate sustainability reporting. This was the first update to the guidance since 2005.

As part of this process, an IPIECA Reporting Task Force convened an Independent Stakeholder Panel, made up of representatives from business, environmental and community-based NGOs, investors, and multilateral institutions. WRI Vice President Janet Ranganathan participated in this panel, and reports back on the results.

Why does corporate sustainability reporting matter?

Sustainability reporting is a key transparency and accountability mechanism that can drive more sustainable decisions both inside and outside companies. Businesses can use the reporting process to identify gaps and prioritize areas for improvement. At the same time, standardized sector-specific reports can inform the decisions of a range of stakeholders, including investors, NGOs, and customers that have a stake in seeing companies become more sustainable.

The Independent Stakeholder Panel said that these new guidelines are a “major improvement.” How so?

The new guidance does represent a major improvement over the 2005 edition. The IPIECA taskforce made a significant effort to engage a wide variety of people in this revision process, including our Independent Stakeholder Panel comprised of representatives from Living Earth, F&C Asset Management, International Finance Corporation, World Resources Institute and a former industry executive. We were able to be frank and honest in our consultations, and the IPIECA taskforce took the risk of inviting us to write an unedited statement at the beginning of the guidelines, an indicator of the level of transparency and trust in this process. Overall, I think the guidelines are much stronger as a result of the engagement with the panel and others consulted in the process.

Panel members contributed especially to the front section that now contains guidance on setting the strategic context. This asks companies to show how their core business vision and strategy addresses key sustainabilty challenges, such as climate change. This big picture section ensures that cross-cutting issues like climate change are addressed up-front rather than getting lost in the details of specific technical indicators.

Participation by Independent Stakeholder Panel members also helped stimulate the inclusion of new indicators on ecosystem services , process safety and five social and economic indicators focusing on local content, suppliers and business partners. We also provided the IPIECA taskforce with examples of emerging best practices for issues such as community engagement . In addition, there is new guidance on determining the materiality of issues for reporting, with a list of the main sustainability issues confronting the sector.

Yet the Panel also noted some shortcomings. What were those?

We had three major concerns. First, there is no minimum reporting standard. The IPIECA taskforce’s rationale for not setting a minimum bar was that they wanted to avoid discouraging first-time reporters. However, this might have been addressed by defining levels of minimum, good, and best reporting practices, and letting companies gradually increase their participation over time.

Second, the guidelines do not require companies to report on targets - the basic building block of any corporate sustainability effort. Any company that is serious about driving continuous improvement needs targets. Targets spur progress inside companies, but they allow for benchmarking against what other companies are doing and improve corporate reputation as a leader on sustainability issue. I see reporting as a means to an end–the end being to improve corporate sustainability performance. Targets are a key mechanism to ensure this happens.

Third, while the revised guidance emphasizes reporting on greenhouse gas reductions, it does not provide a vision on how the industry should respond to growing concerns about climate change and energy security. Obviously there is a big elephant in the room here. To address this, I encourage IPIECA, OPG and API to initiative a multi-stakeholder process to develop a long-term sustainable vision for the sector.

The National Commission on BP Deepwater Horizon Oil Spill and Offshore Drilling also issued its report last month. Does the new sustainability reporting guidance address the problems in safety and response management that the Commission identified?

Not directly. The revised guidance was largely completed before the spill. However, parts of the new guidance are relevant. The front section of the guidance asks companies to state how they are addressing key sustainability challenges as part of their business strategy by describing new investments, initiatives and goals. The guidance also stresses the importance of robust management systems and discussing the status of these in the report. Specific reporting indicators, such as oil spills, address emergency preparedness and response systems. Given the trend of using increasingly complex technology in increasingly complex geological formations and deeper water, the next round of revisions should reflect emerging best practices on spill prevention and management.

Knowing what you do about the oil and gas sector and its current limitations, why do you still work with them on sustainability?

Well of course, many people see sustainability in oil and gas sector as an oxymoron. But, like it or not this sector is likely to play a significant role for decades. Thus any effort like sustainability reporting that can help them reduce their environmental and social impacts, while the world transitions to clean energy, is worthwhile. There is another reason. I still harbor hope that this sector can evolve. Is it an oil and gas sector or an energy services sector? An energy services business model provides a more expansive set of business opportunities to provide clean, affordable (to society and ultimately customers) and socially acceptable product portfolio. BP, under John Brown’s leadership, started to reinvent itself, coining the term “Beyond Petroleum”. That vision now seems less clear and there is a concern that it is sliding “Back to Petroleum”. In my view the long term survival of this sector depends on it tackling the triple challenge of climate change, growing demand for finite fossil resources, and new operating challenges that go well beyond engineering, including fragile ecosystems, impoverished communities, and weak governance.

So do you believe that these revised reporting guidelines will make a difference?

That depends on whether and how they’re actually used, and that depends on what IPIECA, OPG and API actually do to motivate and help their members. Ideally, they should make it a condition of membership that in a certain number of years all members will have to complete a report. They might be afraid of losing members if they require this. But if they don’t, their reputation could erode. There is a lot of scope for more training efforts – to have companies with more experience reporting work with companies that are just starting, for example.

The effectiveness of the guidance also depends on whether they drive greater transparency and accountability in the sector. In my view, what gets measured is more likely to get managed, especially if it is publicly reported and scrutinized in ways that rewards leaders and penalizes laggards.