Oil and Gas Firms Incorporate ESG Goals as Investors, Regulators Show Interest
In direct response to investor demand, more companies are incorporating environmental, social, and governance (ESG) metrics in their performance compensation for their executives, according to a report by Haynes and Boone. Investors want to see that executives are incentivized to implement ESG strategies.
More oil and gas companies, including those headquartered in North Texas, are turning an eye to environmental, social, and governance (ESG) as investors and regulators continue applying pressure.
In direct response to investor demand, more companies are incorporating ESG metrics in their performance compensation for their executives, according to a report by Haynes and Boone. Investors want to see that executives are incentivized to implement ESG strategies.
“Historically, performance compensation is tied to the key operating metrics of the company,” Haynes and Boone partner Jennifer Wisinski said. “Now they’re incorporating how well the executives are implementing the company’s ESG priorities.”
Investors have also been pushing for more quantitative metrics in order to better compare companies. More than two-thirds of the oil and gas producers in the study are disclosing quantitative metrics, an increase from 53 to 73% since the prior year’s report.
Haynes and Boone partnered with management consulting firm EnerCom to release the second edition of their report on the effect of ESG policies on the oil and gas industry.
The study analyzed ESG-related disclosures of 30 oil and gas middle market companies producing onshore in the United States and monitored the change over time.
“I think, in the last year, two of the hot button issues have been climate change and diversity,” Wisinski said. “But different investors will focus on different areas. If you ask investors, generally they will tell you that they put an equal footing on the E, the S, and the G.”
The report found that the number of companies publicly disclosing ESG policies grew to 83%, up from 70% in the previous report. ESG disclosures were mainly displayed on a company’s website, proxy statements, or CEO letters.
Several public and private North Texas oil and gas companies including US Energy Development Corporation, Hunt Oil Company, ExxonMobil, and Natural Resources have their ESG policies and highlights listed on their websites. The way each company discloses their ESG practices varies from business to business but most commonly overlapped in topics including environmental metrics and social impacts.
Wisinski said the primary pressure pushing companies to publish their ESG strategies and achievements is from investors and other stakeholders.
“Over the last few years, there has been a lot of money put into investment funds and other investor groups that are focused on ESG factors,” Wisinski said. “When they have a fund that focuses on ESGs and when they go out and invest in a company, they want to know what those companies are doing for ESGs.”
The ESG tracker shows that 20 of the sample producers disclosed a total of 67 quantitative environmental metrics,14 companies disclosed a total 37 quantitative social metrics, and 14 companies disclosed a total of 31 quantitative governance metrics.