Going Back to Basics with Energy ESG Reporting

HOUSTON—At Hart Energy’s 2022 Energy ESG conference, Vic Svec and Stephanie Weiler of Alvarez & Marsal wasted no time debunking the biggest myth facing the energy industry today: “An oil and gas company will always be a loser in an ESG world.”

ESG is not a new concept to the industry, they reminded conference attendees, in spite of rebranding and geopolitical challenges changing what the fundamentals of ESG looks like.

“I'm somebody who’s been in the energy industry for literally 30 years now, and I've been doing ESG for over 15 years, back when it was called ‘social responsibility,’” said Svec, who serves as managing director. “We do not need to cede the ground nor to view that this is an anti-position when we are doing what really society has asked us to do in this area.”

“We have important values of our products and services within society, and we can hold our head high within the ESG space in being able to demonstrate that and being able to articulate it in a positive way,” he continued. “This is in some ways, I think, one of the most difficult aspects of what we do, but it’s also one of the most important.”

Critical aspects of ESG, according to Svec, include caring for the safety of business practices and the community, remaining conscious of energy access, security and affordability, and producing energy responsibly. These aspects, he continued, are not inherently political and have no reason to be polarizing.

“We have important values of our products and services within society, and we can hold our head high within the ESG space in being able to demonstrate that and being able to articulate it in a positive way.”—Vic Svec, Alvarez & Marsal

“I would encourage everybody to spend some time, though, [to] talk with your colleagues, talk with others in the profession, make sure you are comfortable with it, make sure your company is articulating as well because ESG doesn’t only associate with one political party. It doesn’t need to be polarized,” he said.

While they set the record straight about that myth, Svec and senior director of ESG services, Weiler, shared five ESG and decarbonization “truths” within the oil and gas industry:

1. There are abundant opportunities to enhance a company’s decarbonization efforts throughout the value chain.
2. ESG pressures come from customers, not investors, in the cases of many companies.
3. ESG raises concerns and opportunities in the supply chain across most sectors.
4. Proposed regulations from the U.S. Securities and Exchange Commission are likely to impact most private companies.
5. Carbon trends bring forth “substantial opportunity” to avoid Scope 4 emissions.

Contrary to some beliefs, customers can drive ESG metrics within companies even more than investors, Weiler said. In addition to RFPs and EcoVadis requests, supplier surveys that ask for annual ESG compliance criteria can put a lot of pressure on companies seeking consumer loyalty.

“Customers are sending out that annual survey…not only asking you, what are you doing in these various areas of ESG, but what are your intentions? What are your targets? What are you doing in order to help us with our carbon plans with our supply chain emphasis?” Weiler said.

In addition to revealing the driving force behind ESG reporting, the Alvarez & Marsal directors broached the importance of Scope 4 emissions, referring to greenhouse-gas emissions that are avoided and reduced from the use of a company’s product or service.

While Scope 4 isn’t currently a factor in standardized emissions reporting, it is a good way for a company to show that reducing its carbon footprint is a top priority for it, as well as for the consumers it serves. However, it shouldn’t negate the impact and importance of reporting Scope 1, 2 and 3 emissions.

“If this were a balance sheet while Scope 1 and 2 and 3 might be liabilities, Scope 4 should be an asset out there for many companies that have taken steps in recent years to really mitigate their emissions,” Svec said.