As part of the Guidance update process, the Ipieca Reporting Working Group (RWG) convened a panel of independent experts in sustainability reporting practices relating to the energy industry, as had been done for the 2010 and 2015 editions. As knowledgeable members of the reporting community, the panel represents the views of typical report reader groups: investors; business and industry bodies; environmental and community-oriented NGOs; and multilateral institutions.
The panel’s role was to help ensure that the updated Guidance adequately captures the key sustainability reporting challenges facing the sector and its stakeholders. By providing challenge and comment that informed the content of the Guidance, the panel helped to ensure that the Guidance offers the best possible support for reporting organisations in delivering transparent, balanced and useful sustainability data and information.
As part of the development process for the fourth edition of this Sustainability Reporting Guidance for the Oil and Gas Industry (the Guidance), Ipieca’s Reporting Working Group convened an “Independent Stakeholder Panel” (the Panel) of external specialists to comment on successive drafts and provide insights about how external expectations of the oil and gas industry’s sustainability reporting are evolving.
The Panel members have expertise in investment banking and financial services, corporate transparency and sustainability reporting, law, environment and conservation, climate change, business and human rights, analysis of ESG (environmental, social and governance) performance in multinationals, corporate risk analysis, and the development of international corporate responsibility and reporting standards. The Panel members have held and hold leading roles in a range of organisations, including oil, gas and mining companies, investment banks, non-profit organisations, sustainability consultancies, government policy teams and universities.
Shortly after the Panel’s creation in March 2019, several members joined a face-to-face dialogue on sustainability reporting with representatives of Ipieca member companies. The Panel subsequently provided written comments on both the first and second drafts of this Guidance. Panel members also met with Ipieca’s Reporting Working Group for a detailed discussion about the content of the Guidance.
Changes to external reporting frameworks, increasing public expectations and tightening legislation, combined with oil and gas companies’ wish to continue improving their sustainability reporting, have all influenced the revised content of the Guidance. The Panel acknowledges the significant improvements on the 2015 edition.
We are pleased that two very important topics are now standalone modules: climate change and energy, and governance and business ethics. It was timely to give these topics greater profile in the Guidance: oil and gas industry stakeholders are increasingly seeking to understand how companies take management decisions about both climate change strategy and other aspects of ESG performance.
Another improvement is the new modular structure, which will help users to find information on specific topics. This structure will make it easier to update individual modules in future without having to update and re-publish the entire Guidance.
The editors have also reduced jargon, simplified the language and provided concise practical advice on what companies should include in their report narratives. These enhancements are especially helpful to users whose first language is not English, and to companies who are new to sustainability reporting.
The reporting elements within each indicator now contain only two tiers (‘core’ and ‘additional’), instead of the previous three. This improves clarity and simplicity, especially for companies who are new to sustainability reporting. It also encourages companies to demonstrate progress by incorporating the additional elements into their reports over time.
New indicators include climate governance and strategy, protected and priority areas for biodiversity conservation, and community grievance mechanisms. The content of many existing indicators has been improved, with clearer and in some cases more exacting reporting elements. In some indicators, reporting elements that were formerly ‘additional’ are now ‘core’, reflecting external expectations that these elements are essential to sustainability reporting rather than peripheral.
We are pleased that our feedback contributed to the greater emphasis on metrics and targets in the Guidance, for example in the reporting elements for the climate change and energy indicators. This reflects a growing expectation that companies should publish targets for a range of ESG indicators and report progress. We also welcome the stronger emphasis on how companies are preparing for the energy transition in a just and inclusive manner and aligning business models to support the Paris Agreement.
However, the Panel notes that using this Guidance is still merely voluntary for Ipieca, IOGP and API member companies. This situation has not changed since the 2015 edition. Although most jurisdictions still require only limited sustainability reporting, regulation and societal expectations are growing, and companies can expect non-financial reporting requirements to increase in many jurisdictions. We therefore believe that membership of Ipieca, IOGP and API should include a firmer commitment that companies will follow the sustainability reporting guidance that they have helped to create. At the time of writing, sustainability reporting amongst a substantial proportion of member companies does not meet the expectations in their own industry guidance.
In the climate change arena, the recommendations of the TCFD (Task Force on Climate-related Financial Disclosures) have rapidly gained influence since its inception. The Panel believes that the TCFD recommendations should have considerably more prominence in the Guidance. Current trends also indicate that many key stakeholders for this industry view information on Scope 3 emissions as a core aspect of credible sustainability reporting. Future revisions will need to address these points.
In the broader sustainability arena, the UN SDGs (Sustainability Development Goals) are increasingly influential, and the oil and gas industry can play a key role in progressing these. Future editions of the Guidance may need to recommend that companies give more emphasis to the SDGs in their sustainability reporting.
For investors and ratings agencies, sustainability reports are an important source of information for their assessments of oil and gas companies’ ESG performance and strategy. All stakeholders, and particularly investors, need coherent communication from companies on how they are addressing climate change as a strategic business risk. This information increasingly influences investors’ portfolio selection and capital allocation decisions.
Investment institutions’ scrutiny of the oil and gas industry reflects the priorities of their own shareholders and other stakeholders, who are increasingly pressing them to justify, reduce or cease investing in oil and gas because of climate change concerns. Some oil and gas companies are not yet disclosing how climate change will affect their business, and they are not demonstrating active management of climate change risks to their resilience and viability. This information gap reduces investors’ confidence that they will continue to receive attractive returns and makes it hard to resist the demands to decarbonise their own portfolios.
Lack of data and poor-quality information negatively affect how investors, ratings agencies and regulators perceive the industry. Companies therefore need not only to improve their management of risks from climate change and other ESG issues, but also to report and explain their year-on-year progress with industry-agreed consistent performance metrics. These need to be comparable across the industry, so that investors and other stakeholders can systematically compare different companies’ performance. Publishing targets and KPIs on key topics and then reporting progress against them can be challenging for companies and puts pressure on them to deliver; but they are an important part of convincing stakeholders that the industry can remain economically resilient in a changing world.
This Guidance contains much excellent advice. Its long-term benefit depends entirely on its implementation by the industry. Transparency is an essential part of overcoming the trust gap between the industry and society. We encourage oil and gas companies to embrace sustainability reporting as not merely a duty, but an opportunity to communicate to investors and other stakeholders that they understand and are addressing their ESG risks and opportunities in a way that makes them viable and valuable corporate citizens.