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Oil & Gas Producers

The tension between short-term profit motives and long-term sustainability imperatives is nowhere clearer than in the Oil and Gas Producers sector. However, what our data show is a sector that is not very responsive to expectations from stakeholders who are calling on companies to make sustainability central to their governance, engagement, and disclosure practices, as well as their performance. Though there are some instances of improvement in business practices for specific expectations, overall the sector has made minimal progress over the past two years.
Oil and Gas Producers

Anadarko Petroleum
Apache
Cabot Oil & Gas
Chesapeake Energy
Chevron
Cimarex Energy
Cobalt Intl Energy
Concho Resources
ConocoPhillips
CONSOL Energy
Continental Resources
Denbury Resources
Devon Energy
Energen
EOG Resources
EQT
ExxonMobil
Hess
Marathon Oil
Murphy Oil
Newfield Exploration
Noble Energy
Occidental Petroleum
Pioneer Natural Resources
QEP Resources
Range Resources
Southwestern Energy
Whiting Petroleum
WPX Energy

Key Findings

  • The Oil and Gas sector remains split between companies with active board oversight of sustainability issues and those that do not disclose any evidence of board engagement.
  • An increasing number of companies are linking executive compensation to sustainability performance.
  • Overall analysis of stakeholder engagement expectations finds the majority of Oil and Gas sector companies continue to perform at the Tier 4 level indicating minimal to no engagement with stakeholders on key environmental and social issues.
  • Nearly 60 percent of sector companies still do not publish a sustainability report.
  • More than 60 percent of sector companies disclose in financial filings at least one material sustainability issue that goes beyond compliance; the remainder do not provide any such disclosures.
  • Measures of operational performance indicate a sector that is largely unresponsive to expectations for leadership in addressing environmental and social impacts.
  • Lower carbon energy solutions remain a decidedly low priority for this sector, with only 17 percent of companies documenting any efforts in non-fossil fuels.
  • The large majority of oil and gas companies that still do not disclose any sustainability-focused employee engagement strategies overshadows limited progress against training and support expectations.


Introduction

The tension between short-term profit motives and long-term sustainability imperatives is nowhere clearer than in the Oil and Gas Producers sector. And no wonder – oil and gas companies provide about 50 percent of the world’s energy, and opportunities to increase supply abound. Technological advances that enabled the cost-effective recovery of vast reserves of oil and gas have made the United States the world's largest producer of natural gas and put it on track to become the largest producer of oil by about 2020. Meanwhile, oil sands production in Canada has also seen dramatic growth in recent years.

The sector continues to face numerous environmental and social challenges that become ever more apparent as investment and on-the-ground activity increase, especially when that activity occurs in populated areas. The environmental impact of hydraulic fracturing (“fracking”) to exploit shale energy resources continues to be a source of controversy, especially in areas with no prior history of oil and gas production, and has led some jurisdictions to consider or impose moratoria on development. Natural gas flaring has also emerged as a high-profile issue as considerable shale oil development occurs in regions that lack sufficient pipeline and processing infrastructure to capture and deliver to market the natural gas produced along with the oil. And in Canada, oil sands developers face the need to recognize the rights of Aboriginal populations who face some of the most direct and significant impacts of this industry’s extractive processes.

As companies continue their exploration for oil and gas, a concern regarding carbon asset risk—the risk that a portion of a company’s reserves could become stranded assets as the world transitions to a low-carbon future—is emerging.  Because the value of fossil fuel companies is closely tied to their current and future reserves, this sector faces a particular risk.

The Ceres Roadmap for Sustainability provides the framework, and sets the expectations, for companies to pursue environmental, social, as well as economic sustainability. As such, it helps chart a path toward a low-carbon sustainable future that all industries can travel. Ceres’ analysis of the sector’s performance relative to the Roadmap expectations examined data for 29 companies (compared to 31 in 2012), the large majority of which are engaged primarily or exclusively in exploration and production activities. This sector also includes several integrated oil and gas companies, such as Chevron and ExxonMobil, whose operations include refining and distribution of oil and gas products in addition to exploration and production. What these data show is a sector that is not very responsive to expectations from stakeholders who are calling on companies to make sustainability central to their governance, engagement, and disclosure practices, as well as their performance. Though there are some instances of improvement in business practices for specific expectations, overall the sector has made minimal progress over the past two years.

Governance Section Icon

 

Governance for Sustainability

 

  • The Oil and Gas sector remains split between companies with active board oversight of sustainability issues and those that do not disclose any evidence of board engagement.
  • An increasing number of companies are linking executive compensation to sustainability performance.


Performance in this sector remains uneven on the Roadmap’s expectation that a Board of Directors committee will have formal sustainability oversight responsibilities, or that, at a minimum, executive management will regularly report sustainability issues to the Board. While 41 percent (12 of 29 companies) achieve Tier 1 performance  (i.e., a Board committee oversees both environmental and social issues), the remaining 59 percent (17 companies) do not disclose any direct Board involvement. This split – with all companies categorized as either Tier 1 or Tier 4 – remains unchanged, and in the same proportions, compared to 2012. However, the proportion of companies that link executive compensation and sustainability performance increased to 45 percent (13 companies) from 29 percent in 2012. These results are composed of Tier 1 and Tier 2 companies that link executive compensation to specific targets that may be either compliance-focused or go beyond compliance issues, as well as Tier 3 companies that describe a more general link between compensation and sustainability performance.

The Ceres Roadmap’s Governance expectations also extend to the operational level, with a focus on the establishment of management systems and implementation programs to ensure adherence to company-wide policies related to social and environmental impacts. Two new indicators of performance against this expectation, the quality of policies and quality of programs to protect biodiversity, are particularly relevant to this sector given the extractive nature of oil and gas production activities. Unfortunately, company disclosures indicate a lack of serious attention to these issues; 90 percent (26 companies) do not disclose a biodiversity policy, and 76 percent (22 companies) do not disclose specific programs to manage the impact of their operations on biodiversity.

ConocoPhillips is an example of a company that has made an effort to minimize operational impacts on biodiversity. In addition to evaluating biodiversity risks when evaluating investment opportunities, the company develops Biodiversity Action Plans for assets and projects in areas with high conservation value.

Stakeholder Engagement Section Icon

 

Stakeholder Engagement

 

  • Overall analysis of stakeholder engagement expectations finds the majority of Oil and Gas sector companies continue to perform at the Tier 4 level indicating minimal to no engagement with stakeholders on key environmental and social issues.
  • However, more than 60 percent of companies in this sector now refer to sustainability issues in at least one investor-focused disclosure; two years ago, 94 percent did not report any investor engagement on sustainability.

 

Increasingly, stakeholders, particularly those in the investment community, are looking to see whether oil and gas producers are giving appropriate attention to climate change and other sustainability issues. This appears to be having some impact on the sector’s performance against Ceres Roadmap engagement expectations. Nevertheless, the sector’s performance falls well short of leading practice expectations. For example, while no company has yet reached Tier 1 performance for Focused Engagement Activity, 14 percent (4 of 29 companies) demonstrate Tier 2 performance (including stakeholder identification as well as a description of the nature and timing of stakeholder engagement activities) compared to only three percent in 2012. More notable, is the increase in the number of companies (59 percent, or 17 companies) in Tier 3, which indicates that they have started to engage directly with investors by referencing sustainability risks and opportunities in at least one investor-focused reporting tool. One company, Occidental, reached Tier 2 performance by disclosing sustainability risks or opportunities in two or more investor reporting tools. In 2012, only six percent of companies were in Tier 3, while the remaining 94 percent were in Tier 4, having failed to disclose any sustainability-focused investor engagement. In 2014, 38 percent (11 companies) are still in Tier 4 and continue to fall short of even the minimum level of expected performance.

Disclosure Section Icon

 

Disclosure

 

  • Nearly 60 percent of sector companies still do not publish a sustainability report.
  • More than 60 percent of sector companies disclose in financial filings at least one material sustainability issue that goes beyond compliance; the remainder do not provide any such disclosures.

 

Modest improvement in performance against the Ceres Roadmap’s specific disclosure expectations is tempered by the fact that many companies in the Oil and Gas Producers sector choose not to share sustainability-related information publicly and routinely, as was the case in 2012. Companies that publish sustainability reports in accordance with Global Reporting Initiative (GRI) guidelines (Tier 1 or 2) now account for 37 percent of the sector (11 of 29 companies), compared to 22 percent in 2012. In both instances, only one company (Hess) disclosed reporting at GRI application level A (i.e., Tier 1). However, 59 percent (17 companies) still do not publish a sustainability report (Tier 4), though this is a decrease from 2012 when 68 percent were in this tier.

Consistent with the growing level of engagement with investors, 62 percent (18 companies) now meet Tier 1 or 2 expectations by disclosing at least one material, “beyond compliance” sustainability issue in financial filings, a small increase from 2012 when 58 percent made such disclosures. Of these companies, five have met Tier 1 expectations by disclosing at least two material issues. But, because Tier 3 performance now requires disclosure that goes beyond compliance with applicable laws and regulation (a change since 2012), 38 percent (11 companies) are now categorized as Tier 4 performers.

Performance Section Icon

 

Performance: Operations

 

  • Measures of operational performance indicate a sector that is largely unresponsive to expectations for leadership in addressing environmental and social impacts.


In light of increasing expectations regarding Oil and Gas sector companies’ sustainability performance, the lack of progress against several, key operational performance expectations or indicators is disappointing. Very few companies (14 percent, or 4 of 29 companies) have established quantifiable greenhouse gas emissions reduction goals accompanied by specific timeframes for their achievement, the same level of performance observed in 2012. Forty-eight percent (14 companies) disclose efforts to reduce GHG emissions, but do not indicate targets or timeframes. This result is a step back from 2012 when 55 percent disclosed such efforts.

The Hess Corporation continues to demonstrate its sector leadership in addressing GHG emissions, implementing a seven-part climate change strategy that includes a multi-year emissions reduction target and, since 2012, incorporating carbon footprinting tools and energy efficiency best practices into capital evaluation for new upstream investments of at least $50 million.

The evaluation for a company’s water management practices has changed since 2012 and now requires that companies scoring in Tier 1 or 2 consider supply chain impacts in their water-related management strategies and business risk assessments. No company in this sector includes supply chain considerations in their disclosed water management practices, and only 24 percent (7 companies) reach Tier 3 performance (disclosure of water use and initial water risk assessments, but for less than half of all operations).

Protection of human rights is a key expectation for company operations. A particularly important indicator of human rights performance for oil and gas producers, given the locations in which they operate, is the quality of company policy designed to protect the rights of indigenous peoples. Only two companies—ExxonMobil and ConocoPhillips—currently disclose policies that meet leading practice criteria (a demonstrable commitment to indigenous rights, informed participation of indigenous populations in decision making, periodic reporting of policy implementation, and specific reference to International Labor Organization Convention 169, the Indigenous and Tribal Peoples Convention). Ninety percent (26 companies) do not disclose any indigenous rights policy compared to 80 percent in 2012.

Performance Section Icon

 

Performance: Products & Services

 

  • Lower carbon energy solutions remain a decidedly low priority for this sector.

 

For companies in this sector, performance relative to the Roadmap’s Design for Sustainability expectation is measured by the degree to which they disclose revenues from non-fossil fuel technologies. In other words, the analysis looks for information about direct investments in renewable energy, renewable fuel, or similar projects. While there has been a small increase in the number of companies that document at least some efforts in this regard to 17 percent (5 companies) from 10 percent in 2012, the large majority (83 percent) remain in Tier 4 and do not disclose any such efforts.

Performance Section Icon

 

Performance: Employees

 

  • The large majority of oil and gas companies that still do not disclose any sustainability-focused employee engagement strategies overshadows limited progress against training and support expectations.


The performance of Oil and Gas sector companies with respect to employee training and support on sustainability issues is perhaps the starkest illustration of how far the sector still needs to go. About ten percent (3 companies) are Tier 1 or 2 performers because they systematically make sustainability part of company-wide training and education opportunities (Tier 1), or they offer employees the means to engage on sustainability issues (Tier 2). In 2012, none of the companies in this sector performed in Tier 1 or 2. However, the remaining 90 percent fall into Tier 4 (compared to 94 percent in 2012), meaning they do not disclose any strategy to use training or education to engage employees on sustainability issues.

Marathon Oil maintains a Training Community of Practice as a means to identify and share best practices, increase standardization, and ensure the quality of its training programs while also aligning these programs with business goals such as the promotion of greater economics, social, and environmental sustainability.

 

Explore the interactive data to see how the Oil and Gas sector performed across all Ceres Roadmap expectations in the 2014 Gaining Ground report.