Released April 20, 2021 | SUGAR LAND
en
Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--If some Oil & Gas companies might be tempted to dismiss ESG (Environmental, Social and Governance) criteria as a fad that soon will pass, investors, energy companies and engineering firms have some bad news: it's real, it's here, and failure to get on board risks a loss of investment capital and business.
Several speakers addressed ESG in the oil & gas industry at a conference held earlier this month, sponsored by EnerCom Incorporated (Denver, Colorado). At "EnerCom Dallas: The Energy Investment & ESG Conference," held April 6 and 7, Nat Bullard, chief content officer for Bloomberg New Energy Finance, said global equity investments in the energy transition hit $501 billion last year. Bloomberg NEF defines the energy transition as renewable energy, electrified transport, electrified heat, energy storage, hydrogen and carbon capture and storage (CCS). In 2004, by contrast, those investments totaled about $33 million.
Click on the image at right to see a chart of energy transition investments since 2004.
Speaking on April 7, Bullard noted that global sustainability bond issuance totaled $732 billion last year, an increase of $169 billion over 2019. He predicted it would only be a few years until global sustainability debt issuance would surpass $1 trillion. In 2013, by contrast, only about $26.6 billion of sustainability bonds were issued, he said.
Click on the image at right to see Bloomberg NEF's tally of global sustainability bonds since 2013.
The Bloomberg NEF content chief also told attendees at the EnerCom event that there has been a stampede of companies aligning their sustainability reporting practices with the Task Force on Climate-Related Financial Disclosures (TCFD), a non-governmental organization founded in 2015 to develop a set of voluntary climate-related financial risk disclosures that can be adopted by companies so that those companies can inform investors and other members of the public about the risks they face related to climate change.
"Strong ESG performance translates into better business," EnerCom president Aaron Vandeford told the Dallas event. "It leads to better social license to operate (SLTO), reduced waste and improved employee morale."
Outside the Dallas conference center where the EnerCom event took place, investors, energy companies and engineering concerns were making it clear that ESG criteria would be a foundational part of the "rules of the road" going forward.
BlackRock Incorporated (NYSE:BLK) (New York, New York) is the world's largest asset manager, with about $8.7 trillion of assets under management as of December 31, 2020. In his January 2021 annual letter to the CEOs of companies his firm might invest in, BlackRock CEO Larry Fink began by referencing his annual letter from the year earlier: "Last year (in January 2020) we wrote to you that BlackRock was making sustainability our new standard for investing. We made this commitment on the strength of a deeply-held investment conviction: that integrating sustainability can help investors build more resilient portfolios and achieve better long-term, risk-adjusted returns."
"Assessing sustainability risks requires that investors have access to consistent, high-quality and material public information," he continued in his January 2021 letter. He urged companies seeking BlackRock's investment to report ESG initiatives "in alignment with the recommendations of the TCFD and the Sustainability Accounting Standards Board (SASB), which covers a broader set of material sustainability factors."
Further recent demonstration of the interest investors have in investing in companies following sustainability protocols: A new BlackRock fund, specializing in renewable energy, was launched with a goal of collecting $2.5 billion in new-money commitments. That fund recently closed, according to Bloomberg news report, with $4.8 billion in commitments, nearly double the amount originally sought. Bloomberg quoted Jim Barry, chief investment officer of BlackRock Alternatives Investors, as saying: "You're seeing a major shift in institutional interest in decarbonization and wanting to allocate into it. The pandemic has only sustained and added to that momentum."
The implication of BlackRock's words and deeds is clear: Resist ESG and kiss goodbye the prospect of BlackRock's capital. For an industry as capital-starved as Oil & Gas, resistance likely would narrow their business horizons and potentially shorten their corporate lives.
It's not just the investors who are pushing ESG. Major engineering and construction firms also are removing from their supply chains companies that don't follow and report sustainability practices. John Wood Group Plc (Aberdeen, Scotland), a large engineering and consulting firm with numerous projects in the oil and gas industry, cut by 50% the number of contractors with whom it works following a 2019 internal assessment. From the context, it appears those who did not make the cut were those whose ESG activities, metrics and frameworks did not match Wood's.
The firm said this in its 2020 sustainability report: "As a global engineering and consultancy business, we recognize the active role our supply-chain partners play in reaching our sustainability goals and the importance of a shared commitment and understanding of our approach to business conduct. Aligned to our Code of Conduct, Wood's Supply Chain Code of Conduct sets the expectation of anyone working on behalf of Wood to comply with all laws, and to act ethically and with integrity at all times."
"Our subcontractor award and administration policy further helps to define how we identify and select subcontractors, how we administer these subcontracts and engage with contracting companies," the report continued. "Our internal methods of monitoring and reporting ensures we continually assess our supply base to ensure compliance with our standards and continual improvement."
Gary Martin, vice president with Black & Veatch's oil & gas business, said this in an email interview with Industrial Info: "Throughout the last year, we have witnessed a tremendous uptick in oil and gas industry interest in setting and meeting sustainability goals as they work to improve operations and meet decarbonization targets. At Black & Veatch, we are seeing reinvigorated interest into how companies can best plan and prepare to meet their environmental goals. These commitments and actions are driven from the top down, with an openness to large, sweeping--and not just incremental--change."
And in its recently published 2021 energy transition strategy, Royal Dutch Shell Plc (NYSE:RDS.A) (The Hague, Netherlands) wrote, "We seek to work with contractors and suppliers who contribute to sustainable development and are economically, environmentally and socially responsible." No ESG doubters need apply, apparently.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.
Several speakers addressed ESG in the oil & gas industry at a conference held earlier this month, sponsored by EnerCom Incorporated (Denver, Colorado). At "EnerCom Dallas: The Energy Investment & ESG Conference," held April 6 and 7, Nat Bullard, chief content officer for Bloomberg New Energy Finance, said global equity investments in the energy transition hit $501 billion last year. Bloomberg NEF defines the energy transition as renewable energy, electrified transport, electrified heat, energy storage, hydrogen and carbon capture and storage (CCS). In 2004, by contrast, those investments totaled about $33 million.
Click on the image at right to see a chart of energy transition investments since 2004. Speaking on April 7, Bullard noted that global sustainability bond issuance totaled $732 billion last year, an increase of $169 billion over 2019. He predicted it would only be a few years until global sustainability debt issuance would surpass $1 trillion. In 2013, by contrast, only about $26.6 billion of sustainability bonds were issued, he said.
Click on the image at right to see Bloomberg NEF's tally of global sustainability bonds since 2013.The Bloomberg NEF content chief also told attendees at the EnerCom event that there has been a stampede of companies aligning their sustainability reporting practices with the Task Force on Climate-Related Financial Disclosures (TCFD), a non-governmental organization founded in 2015 to develop a set of voluntary climate-related financial risk disclosures that can be adopted by companies so that those companies can inform investors and other members of the public about the risks they face related to climate change.
"Strong ESG performance translates into better business," EnerCom president Aaron Vandeford told the Dallas event. "It leads to better social license to operate (SLTO), reduced waste and improved employee morale."
Outside the Dallas conference center where the EnerCom event took place, investors, energy companies and engineering concerns were making it clear that ESG criteria would be a foundational part of the "rules of the road" going forward.
BlackRock Incorporated (NYSE:BLK) (New York, New York) is the world's largest asset manager, with about $8.7 trillion of assets under management as of December 31, 2020. In his January 2021 annual letter to the CEOs of companies his firm might invest in, BlackRock CEO Larry Fink began by referencing his annual letter from the year earlier: "Last year (in January 2020) we wrote to you that BlackRock was making sustainability our new standard for investing. We made this commitment on the strength of a deeply-held investment conviction: that integrating sustainability can help investors build more resilient portfolios and achieve better long-term, risk-adjusted returns."
"Assessing sustainability risks requires that investors have access to consistent, high-quality and material public information," he continued in his January 2021 letter. He urged companies seeking BlackRock's investment to report ESG initiatives "in alignment with the recommendations of the TCFD and the Sustainability Accounting Standards Board (SASB), which covers a broader set of material sustainability factors."
Further recent demonstration of the interest investors have in investing in companies following sustainability protocols: A new BlackRock fund, specializing in renewable energy, was launched with a goal of collecting $2.5 billion in new-money commitments. That fund recently closed, according to Bloomberg news report, with $4.8 billion in commitments, nearly double the amount originally sought. Bloomberg quoted Jim Barry, chief investment officer of BlackRock Alternatives Investors, as saying: "You're seeing a major shift in institutional interest in decarbonization and wanting to allocate into it. The pandemic has only sustained and added to that momentum."
The implication of BlackRock's words and deeds is clear: Resist ESG and kiss goodbye the prospect of BlackRock's capital. For an industry as capital-starved as Oil & Gas, resistance likely would narrow their business horizons and potentially shorten their corporate lives.
It's not just the investors who are pushing ESG. Major engineering and construction firms also are removing from their supply chains companies that don't follow and report sustainability practices. John Wood Group Plc (Aberdeen, Scotland), a large engineering and consulting firm with numerous projects in the oil and gas industry, cut by 50% the number of contractors with whom it works following a 2019 internal assessment. From the context, it appears those who did not make the cut were those whose ESG activities, metrics and frameworks did not match Wood's.
The firm said this in its 2020 sustainability report: "As a global engineering and consultancy business, we recognize the active role our supply-chain partners play in reaching our sustainability goals and the importance of a shared commitment and understanding of our approach to business conduct. Aligned to our Code of Conduct, Wood's Supply Chain Code of Conduct sets the expectation of anyone working on behalf of Wood to comply with all laws, and to act ethically and with integrity at all times."
"Our subcontractor award and administration policy further helps to define how we identify and select subcontractors, how we administer these subcontracts and engage with contracting companies," the report continued. "Our internal methods of monitoring and reporting ensures we continually assess our supply base to ensure compliance with our standards and continual improvement."
Gary Martin, vice president with Black & Veatch's oil & gas business, said this in an email interview with Industrial Info: "Throughout the last year, we have witnessed a tremendous uptick in oil and gas industry interest in setting and meeting sustainability goals as they work to improve operations and meet decarbonization targets. At Black & Veatch, we are seeing reinvigorated interest into how companies can best plan and prepare to meet their environmental goals. These commitments and actions are driven from the top down, with an openness to large, sweeping--and not just incremental--change."
And in its recently published 2021 energy transition strategy, Royal Dutch Shell Plc (NYSE:RDS.A) (The Hague, Netherlands) wrote, "We seek to work with contractors and suppliers who contribute to sustainable development and are economically, environmentally and socially responsible." No ESG doubters need apply, apparently.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.
