ESG For Energy & Natural Resources

Sustainability has gone mainstream

Across the industrial world, attentions are increasingly focused on environmental, social and governance (ESG) principles. Energy and natural resources has come under particular scrutiny as the world strives to tackle climate change, and that’s translating into pressure from investors and shareholders – and increasingly stringent regulations around reporting. And with the potential for carbon costs in a range of countries, scrutiny of corporate emissions footprints and value at risk will only increase.

It’s a particularly big challenge for Big Oil. The threat of climate change is an existential challenge that demands new business models, aligned with the goals of the Paris Agreement. The fight is on to remain investible through the energy transition.

ESG goes far beyond environmental issues

Environmental issues are a focal point, but only one part of the ESG equation. Due diligence has many measurable factors – from carbon emissions and water use to human rights and the local socio-economic impact of individual projects. There are also ESG risks linked to third-party stakeholders, such as contractors, suppliers, local officials and project co-owners.

For extractive industries like oil and gas and mining, sustainable growth depends on understanding, identifying and even anticipating these above-ground risks. It means establishing a social license to operate by proving your ongoing ESG commitment to shareholders, employees and the local communities in which you operate. 

The price of getting ESG compliance wrong – and how to get it right

Getting it wrong can be expensive. A week’s disruption for a world-class mining operation due to social or environmental issues can easily cost US$30 million, for example. Reputational damage and/or resulting policy changes could see the impact quickly multiply. A hard-earned social license to operate can vanish overnight, taking investor confidence with it. 

For corporates, the importance of pro-active, pre-emptive risk management has dramatically increased. For investors, the need for robust ESG due diligence is a core component of decision-making. Both require accurate data, timely insight and trusted expertise – which Wood Mackenzie can deliver. Contact us to find out more.