April 2022 /// Vol 343 No. 4)
The ESG perspective: A day without oil?
Things are beginning to move a little quicker in ESG reporting and standards. Recently, the International Sustainability Board published its first two proposals on development of global standards.
Things are beginning to move a little quicker in ESG reporting and standards. Recently, the International Sustainability Board published its first two proposals on development of global standards. The U.S. Securities and Exchange Commission (SEC) on March 21, 2022, issued a proposed rule for new ESG disclosure requirements, starting as early as 2024. This looks like we are aligning toward more comprehensive ESG reporting for public companies. On the surface, this supports the massive shift toward Carbon Capture and Sequestration (CCS), as the race toward net zero begins. But is it all that simple?
You see, plenty of negotiating and posturing is still taking place as these disclosure requirements are being developed, and we still don’t have a clear view of what exactly these standards might be. Even the SEC’s proposed rule is still receiving public comment and possibly some legal challenges, so it’s hard to say that 2024 will be the first year that these standards are reported. One of the more complicated issues will be reporting Scope 3 emissions, even though they are extending the reporting requirements. The root of the problem will be how to get a private company, which is not obligated to report Scope 3 emissions, to report its emissions to a publicly traded client. There is much in the way of details to work out here before the smoke clears and believe me, there is a lot of smoke.
What is undeniable is we will see more transparency for publicly traded companies and pressure to get to carbon net zero will continue. The question is which way will the scales tip—toward eliminating fossil fuels or to a more reasonable balance? In my last column, I discussed the importance of the European Commission (EC) ruling that natural gas, with some caveats, could be sustainable. Of course, this came after a disastrous winter that saw increasing energy use and decreasing reliability, with blackouts and brownouts, as the EU became more solar- and wind-centric. This seems to tip the scale toward the more reasonable balance I think we need. Since then, on March 28,2022, the SEC ruled that Green Century (an environmental mutual fund company) could move forward with its proposal to Chubb Limited (a large property and casualty insurance company), to cease underwriting new fossil fuel supplies, a tip in the other direction.
On the surface, while the EU is learning from its overdependence on solar and wind, and needs more reliable, less-expensive sources of energy, the U.S. is heading headlong down the same path that the EU is trying to shift from. Don’t get me wrong: the EC faced a lot of backlash from its decision, and we can still see some shifts down the road. So, there possibly will be some reversal. That is why I called this decision a battleground topic for our industry that we cannot lose. The SEC ruling in favor of Green Century is exactly what this battle is about. As we talk about the path and race to net zero, they are talking about eliminating the oil and gas industry.
Then came Russia’s invasion of Ukraine. As horrific and terrible as this invasion is, it accomplished one thing—it underscored the world’s dependence on oil and gas. With U.S. gas prices already on the rise, this invasion increased prices even further. Russia’s leverage on Europe in general, but primarily Eastern Europe, is Russian oil and gas. They even use these commodities to support the Russian ruble by tying it to a gold standard lower than the existing one and requiring buying nations to purchase Russian oil and gas in rubles. This is in response to sanctions that have devastated the ruble. Let’s hope Putin’s effort to tie the ruble to gold is as unsuccessful as Libya’s Gaddafi’s attempt. If anything, it may better align NATO against Russia, but I digress. Russia’s invasion has led Europe to look for other oil and gas sources. It also has forced the Biden administration to reconsider its attempt to shut down leases on federal lands.
The opposition will argue that this is exactly why we must hurry to eliminate fossil fuels, to eliminate the leverage countries like Russia have over the world. The problem is the real treachery this path will take. Europe certainly has gotten a taste of it—increasing energy costs with less reliability; increasing cost of everything; no more asphalt, plastics, rubber and chemicals that we use every day; tires for our cars. Yes, we can develop alternatives, but at what cost and in what timeframe? Or we can offset fossil fuel emissions and develop a new CCS industry while moving toward cleaner energy in a slower transition. There are bigger and bolder movements within the industry—what if we offset our emissions with CCS and take our produced water and clean it to discharge standards? Imagine a net zero industry that provides energy as well as clean water—can there be anything more sustainable?
We must support efforts to include natural gas in sustainability conversations. We cannot let the ESG movement become the fossil fuel elimination movement. In 2004, a famous mockumentary was made, “A Day Without a Mexican,” to highlight the importance of this community to California. Well, I think it’s about time for our own documentary, “A Day Without Oil,” to highlight how vital oil is to our everyday lives. I don’t believe that everyday Americans truly understand this and what an outright ban on fossil fuels really means, plus the devastation it would cause to our way of life and economy.
I will keep you updated on all matters ESG in the industry, but we must stay vigilant and support our industry and its efforts to move towards net zero. The race is on my friends; let’s not take our eye off the target.