{"id":11919,"date":"2021-09-09T08:30:50","date_gmt":"2021-09-09T07:30:50","guid":{"rendered":"https:\/\/www.westwoodenergy.com\/?p=11919"},"modified":"2025-04-25T16:43:29","modified_gmt":"2025-04-25T15:43:29","slug":"energy-transition-insights-esg-performance-just-what-are-investors-looking-for","status":"publish","type":"post","link":"https:\/\/www.westwoodenergy.com\/news\/energy-transition-insights\/energy-transition-insights-esg-performance-just-what-are-investors-looking-for","title":{"rendered":"Energy Transition Insights – ESG performance: just what are investors looking for?"},"content":{"rendered":"[vc_row type=”in_container” full_screen_row_position=”middle” column_margin=”default” column_direction=”default” column_direction_tablet=”default” column_direction_phone=”default” scene_position=”center” text_color=”dark” text_align=”left” row_border_radius=”none” row_border_radius_applies=”bg” overflow=”visible” overlay_strength=”0.3″ gradient_direction=”left_to_right” shape_divider_position=”bottom” bg_image_animation=”none”][vc_column column_padding=”no-extra-padding” column_padding_tablet=”inherit” column_padding_phone=”inherit” column_padding_position=”all” column_element_direction_desktop=”default” column_element_spacing=”default” desktop_text_alignment=”default” tablet_text_alignment=”default” phone_text_alignment=”default” background_color_opacity=”1″ background_hover_color_opacity=”1″ column_backdrop_filter=”none” column_shadow=”none” column_border_radius=”none” column_link_target=”_self” column_position=”default” gradient_direction=”left_to_right” overlay_strength=”0.3″ width=”1\/1″ tablet_width_inherit=”default” animation_type=”default” bg_image_animation=”none” border_type=”simple” column_border_width=”none” column_border_style=”solid”][vc_column_text]\n

ESG performance: just what are investors looking for?<\/strong><\/h2>\n

Getting money from investors is never easy. And for the oil and gas sector, it\u2019s getting harder. In a sign of the times, the UK Liberal Democrat party last month proposed banning<\/a><\/strong> new fossil fuel company listings from the London Stock Exchange. With the Lib Dems far from the halls of power, and new oil and gas listings fading, the proposal had more than a whiff of PR stunt about it.<\/p>\n

But it underscored a growing problem for oil and gas: the industry\u2019s core business model is no longer seen as compatible with responsible investing. This was already patently apparent in May, when ExxonMobil and Chevron were both hit by activist investor actions<\/a><\/strong> on the same day. That same month, the International Energy Agency\u2014traditionally an oil and gas cheerleader\u2014published a roadmap for net zero emissions by 2050 that called for a halt on all new exploration and production (E&P) developments.<\/p>\n

E&P companies \u201cneed to prepare themselves for a world where exploration capital is constrained,\u201d we concluded at the time<\/a><\/strong>. The same goes for the remainder of the oil and gas value chain.<\/p>\n

Few leaders in the industry would now doubt that they must adapt. For companies looking to retain hydrocarbon assets, moving towards low-carbon operations (covering Scope 1 and 2) is now a minimum expectation. Investment and innovation will also be needed in carbon removal technologies and in carbon-free variants<\/a><\/strong> of current products for the industry to manage its future risk. Diversification into non-hydrocarbon areas such as offshore wind<\/a><\/strong> can also play a role. Adapting is an immense task, with each company likely having to develop a strategy based on its own set of circumstances.<\/p>\n

A key question is: how far and how fast do I have to go to get investors back on board? The answer, unfortunately, is far from clear.[\/vc_column_text][\/vc_column][\/vc_row][vc_row type=”in_container” full_screen_row_position=”middle” column_margin=”default” column_direction=”default” column_direction_tablet=”default” column_direction_phone=”default” scene_position=”center” text_color=”dark” text_align=”left” row_border_radius=”none” row_border_radius_applies=”bg” overflow=”visible” overlay_strength=”0.3″ gradient_direction=”left_to_right” shape_divider_position=”bottom” bg_image_animation=”none”][vc_column column_padding=”no-extra-padding” column_padding_tablet=”inherit” column_padding_phone=”inherit” column_padding_position=”all” column_element_direction_desktop=”default” column_element_spacing=”default” desktop_text_alignment=”default” tablet_text_alignment=”default” phone_text_alignment=”default” background_color_opacity=”1″ background_hover_color_opacity=”1″ column_backdrop_filter=”none” column_shadow=”none” column_border_radius=”none” column_link_target=”_self” column_position=”default” gradient_direction=”left_to_right” overlay_strength=”0.3″ width=”1\/1″ tablet_width_inherit=”default” animation_type=”default” bg_image_animation=”none” border_type=”simple” column_border_width=”none” column_border_style=”solid”][vc_column_text]\n

ESG and sustainable investing<\/strong><\/h2>\n

Reticence to back oil and gas companies is born from wider investor concerns about environmental, social and governance (ESG) performance. With over half of the total funds managed now committed to a net-zero target, there is an increasing consensus that high ESG scores are linked to improved long-term returns. Furthermore, says the investment management behemoth BlackRock<\/a><\/strong>, \u201cESG is often conflated or used interchangeably with the term \u2018sustainable investing.\u2019 We see sustainable investing as the umbrella and ESG as a data toolkit for identifying and informing our solutions.\u201d<\/p>\n

However, recent evidence indicates this kit may house blunt instruments rather than precision tools. A study<\/a><\/strong> last month by the London, UK-based think tank InfluenceMap found most climate-themed investment funds, including those from State Street Corporation, UBS Group and BlackRock, are misaligned with the goals of the Paris Agreement.<\/p>\n

“The lack of consistency and clarity makes it difficult for investors to determine what these funds’ descriptors mean in practice,\u201d noted InfluenceMap analyst Daan Van Acker.[\/vc_column_text][image_with_animation image_url=”11920″ image_size=”full” animation_type=”entrance” animation=”Fade In” animation_easing=”default” animation_movement_type=”transform_y” hover_animation=”none” alignment=”” img_link_large=”yes” border_radius=”none” box_shadow=”none” image_loading=”default” max_width=”100%” max_width_mobile=”default”][vc_column_text]\n

How climate-themed funds measure up against the Paris Agreement. Funds with scores below zero claim to be climate-focused but support investments that go against Paris Agreement goals. MSCI = Morgan Stanley Capital International.
\nSource: InfluenceMap<\/a>.<\/h6>\n[\/vc_column_text][\/vc_column][\/vc_row][vc_row type=”in_container” full_screen_row_position=”middle” column_margin=”default” column_direction=”default” column_direction_tablet=”default” column_direction_phone=”default” scene_position=”center” text_color=”dark” text_align=”left” row_border_radius=”none” row_border_radius_applies=”bg” overflow=”visible” overlay_strength=”0.3″ gradient_direction=”left_to_right” shape_divider_position=”bottom” bg_image_animation=”none”][vc_column column_padding=”no-extra-padding” column_padding_tablet=”inherit” column_padding_phone=”inherit” column_padding_position=”all” column_element_direction_desktop=”default” column_element_spacing=”default” desktop_text_alignment=”default” tablet_text_alignment=”default” phone_text_alignment=”default” background_color_opacity=”1″ background_hover_color_opacity=”1″ column_backdrop_filter=”none” column_shadow=”none” column_border_radius=”none” column_link_target=”_self” column_position=”default” gradient_direction=”left_to_right” overlay_strength=”0.3″ width=”1\/1″ tablet_width_inherit=”default” animation_type=”default” bg_image_animation=”none” border_type=”simple” column_border_width=”none” column_border_style=”solid”][vc_column_text]This lack of consistency is not helped by the fact that there are many ways to measure components of ESG, resulting in confusion<\/a> <\/strong>and a divergence of methodologies \u2013 and therefore ESG ratings \u2013 for individual companies. There are several tools and assessments, including those developed by the asset owner-led Transition Pathway Initiative<\/a> <\/strong>and financial think-tank Carbon Tracker<\/a><\/strong>, for example, that use different methodologies to rank and benchmark companies\u2019 relative preparedness for the transition to a low-carbon economy. And then there are the requirements of specific investors.<\/p>\n

BlackRock, for instance, has gone from having 12 to 1,200<\/a><\/strong> key performance indicators relating to sustainability related risks. And Kimmeridge, a private equity firm focused on making direct investments in unconventional oil and gas assets in the US, last year published a list of five sustainability requirements for its investment targets.<\/p>\n

These include the elimination of routine flaring by 2025 and the reduction of US methane intensity below 0.2% of gas production by 2023. The good news is that \u201cfor the E&P industry, a low-carbon future does not mean abandoning or exiting the business,\u201d said<\/a> the firm. \u201cRather, it represents a world where companies operate more efficiently while measuring, reporting and minimising their impact on the environment.\u201d[\/vc_column_text][\/vc_column][\/vc_row][vc_row type=”in_container” full_screen_row_position=”middle” column_margin=”default” column_direction=”default” column_direction_tablet=”default” column_direction_phone=”default” scene_position=”center” text_color=”dark” text_align=”left” row_border_radius=”none” row_border_radius_applies=”bg” overflow=”visible” overlay_strength=”0.3″ gradient_direction=”left_to_right” shape_divider_position=”bottom” bg_image_animation=”none”][vc_column column_padding=”no-extra-padding” column_padding_tablet=”inherit” column_padding_phone=”inherit” column_padding_position=”all” column_element_direction_desktop=”default” column_element_spacing=”default” desktop_text_alignment=”default” tablet_text_alignment=”default” phone_text_alignment=”default” background_color_opacity=”1″ background_hover_color_opacity=”1″ column_backdrop_filter=”none” column_shadow=”none” column_border_radius=”none” column_link_target=”_self” column_position=”default” gradient_direction=”left_to_right” overlay_strength=”0.3″ width=”1\/1″ tablet_width_inherit=”default” animation_type=”default” bg_image_animation=”none” border_type=”simple” column_border_width=”none” column_border_style=”solid”][vc_column_text]\n

Clarity on the path ahead <\/strong><\/h2>\n

Foreshadowing InfluenceMap\u2019s research, in March BlackRock\u2019s former chief investment officer for sustainable investing, Tariq Fancy, said<\/a><\/strong>: \u201cThe financial services industry is duping the American public with its pro-environment, sustainable investing practices.\u201d And if investment managers themselves cannot make up their minds about what constitutes a sustainable business, how are oil and gas companies supposed to know what to aim for?<\/p>\n

For a start, the financial services industry needs to be much clearer and consistent in what it expects from the oil and gas industry. Long-term goals, such as net zero, are helpful in setting a direction. But the oil and gas industry requires its financial partners and investors to be resolute and decisive, clearly articulating sustainability metrics and returns expectations, to help companies benchmark themselves and access capital in an efficient manner.<\/p>\n

Reducing emissions and carbon footprints is an overarching theme that needs to be expounded using achievable objectives, metrics and goals over time. Given the circumstances of each oil and gas company, and the breadth of stakeholders involved in defining and communicating its future, it is also essential there is engagement and alignment across the board, management, investor relations, investors and financial partners on ESG and its implications. Having a good grasp of commercial and financial drivers along with the relative importance of different components of ESG will be crucial going forward.<\/p>\n

The oil and gas industry needs to adapt if not transform its business in the face of the energy transition. As a capital-intensive industry, clarity from and alignment and active engagement with investors and financial partners will be key to achieving that.[\/vc_column_text][\/vc_column][\/vc_row][vc_row type=”in_container” full_screen_row_position=”middle” column_margin=”default” column_direction=”default” column_direction_tablet=”default” column_direction_phone=”default” scene_position=”center” text_color=”dark” text_align=”left” row_border_radius=”none” row_border_radius_applies=”bg” overflow=”visible” overlay_strength=”0.3″ gradient_direction=”left_to_right” shape_divider_position=”bottom” bg_image_animation=”none”][vc_column column_padding=”no-extra-padding” column_padding_tablet=”inherit” column_padding_phone=”inherit” column_padding_position=”all” column_element_direction_desktop=”default” column_element_spacing=”default” desktop_text_alignment=”default” tablet_text_alignment=”default” phone_text_alignment=”default” background_color_opacity=”1″ background_hover_color_opacity=”1″ column_backdrop_filter=”none” column_shadow=”none” column_border_radius=”none” column_link_target=”_self” column_position=”default” gradient_direction=”left_to_right” overlay_strength=”0.3″ width=”1\/1″ tablet_width_inherit=”default” animation_type=”default” bg_image_animation=”none” border_type=”simple” column_border_width=”none” column_border_style=”solid”][divider line_type=”Full Width Line” line_thickness=”1″ divider_color=”default”][\/vc_column][\/vc_row][vc_row type=”in_container” full_screen_row_position=”middle” column_margin=”default” column_direction=”default” column_direction_tablet=”default” column_direction_phone=”default” scene_position=”center” text_color=”dark” text_align=”left” row_border_radius=”none” row_border_radius_applies=”bg” overflow=”visible” overlay_strength=”0.3″ gradient_direction=”left_to_right” shape_divider_position=”bottom” bg_image_animation=”none”][vc_column column_padding=”no-extra-padding” column_padding_tablet=”inherit” column_padding_phone=”inherit” column_padding_position=”all” column_element_direction_desktop=”default” column_element_spacing=”default” desktop_text_alignment=”default” tablet_text_alignment=”default” phone_text_alignment=”default” background_color_opacity=”1″ background_hover_color_opacity=”1″ column_backdrop_filter=”none” column_shadow=”none” column_border_radius=”none” column_link_target=”_self” column_position=”default” gradient_direction=”left_to_right” overlay_strength=”0.3″ width=”1\/4″ tablet_width_inherit=”default” animation_type=”default” bg_image_animation=”none” border_type=”simple” column_border_width=”none” column_border_style=”solid”][image_with_animation image_url=”11761″ image_size=”full” animation_type=”entrance” animation=”Fade In” animation_easing=”default” animation_movement_type=”transform_y” hover_animation=”none” alignment=”” border_radius=”none” box_shadow=”small_depth” image_loading=”default” max_width=”100%” max_width_mobile=”default”][\/vc_column][vc_column column_padding=”no-extra-padding” column_padding_tablet=”inherit” column_padding_phone=”inherit” column_padding_position=”all” column_element_direction_desktop=”default” column_element_spacing=”default” desktop_text_alignment=”default” tablet_text_alignment=”default” phone_text_alignment=”default” background_color_opacity=”1″ background_hover_color_opacity=”1″ column_backdrop_filter=”none” column_shadow=”none” column_border_radius=”none” column_link_target=”_self” column_position=”default” gradient_direction=”left_to_right” overlay_strength=”0.3″ width=”3\/4″ tablet_width_inherit=”default” animation_type=”default” bg_image_animation=”none” border_type=”simple” column_border_width=”none” column_border_style=”solid”][vc_column_text]We’re delighted to start announcing guests for our next series of Energy Transition Now Podcasts<\/strong>.[\/vc_column_text][nectar_btn size=”small” open_new_tab=”true” button_style=”regular” button_color_2=”Accent-Color” icon_family=”none” text=”Podcast Listings” url=”https:\/\/www.westwoodenergy.com\/news\/video-podcasts\/energy-transition-now”][\/vc_column][\/vc_row][vc_row type=”in_container” full_screen_row_position=”middle” column_margin=”default” column_direction=”default” column_direction_tablet=”default” column_direction_phone=”default” scene_position=”center” text_color=”dark” text_align=”left” row_border_radius=”none” row_border_radius_applies=”bg” overflow=”visible” overlay_strength=”0.3″ gradient_direction=”left_to_right” shape_divider_position=”bottom” bg_image_animation=”none”][vc_column column_padding=”no-extra-padding” column_padding_tablet=”inherit” column_padding_phone=”inherit” column_padding_position=”all” column_element_direction_desktop=”default” column_element_spacing=”default” desktop_text_alignment=”default” tablet_text_alignment=”default” phone_text_alignment=”default” background_color_opacity=”1″ background_hover_color_opacity=”1″ column_backdrop_filter=”none” column_shadow=”none” column_border_radius=”none” 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The digest: this month\u2019s key headlines<\/h2>\n