Environmental, social, and governance (ESG) articles are increasingly in the news. ESG metrics are factors that can be used to measure the sustainability and social impact of a business. Investors and capital markets can use these criteria to screen potential investments for future performance. ESG is becoming more than a buzzword because certain large investors are using ESG for investment decisions.
Descriptions of the ESG factors include:
- Environmental criteria measure how a business performs regarding climate and other environmental risks.
- Social criteria measure societal impacts regarding product liability, data security risks, employee relations, diversity, working conditions and health and safety.
- Governance criteria measure corporate governance regarding leadership, audits, internal controls and shareholder rights.
Companies may be assigned an ESG risk rating/score based on reported or available data to ESG risk ratings agencies.
This blog topic discusses some action items that the petroleum industry can take to address the Environmental part of ESG.
Environmental criteria include:
- Air emission to the atmosphere – including greenhouse gases (GHG)
- Climate change impacts
- Discharges to water
- Solid waste management
- Spills to the environment
- Resource availability and use such as freshwater for operations
Businesses can prepare for the ongoing response to climate change by taking voluntary actions now. Some actions businesses can take for the petroleum and natural gas industries include:
- Determine GHG emissions from your operations Most important are the CO2 emissions from combustion of fossil fuels and methane emissions from equipment leaks. Based on guidance from the World Resources Greenhouse Gas Protocol, there are
- Scope 1 direct emissions from onsite combustion and venting sources. These are the same GHG emissions required to be reported to the USEPA.
- Scope 2 indirect emissions from purchased electricity, heat and steam.
- Scope 3 value chain emissions from use of sold products (e.g., gasoline/diesel fuel refined from crude oil and natural gas fuel used by utilities, homeowners), product transport, employee business travel and employee commuting.
NOTE: Scope 3 emissions will be much greater than Scope 1 and 2 emissions.
Calculating your company’s baseline year and year-to-year GHG emissions is important to demonstrate mass reductions in your emissions and intensity of GHG emissions (e.g., kilograms CO2e per barrels oil equivalent (kg CO2e/BOE)). -> Cimarron can offer this service (calculate your company’s baseline GHG emissions)
- Oil and gas operations can join and actively participate in voluntary programs to reduce methane emissions. These include the following for oil and gas operators.
For other industries can participate in these USEPA programs:
- Coalbed Methane Outreach Program (CMOP)
- Landfill Methane Outreach Program (LMOP)
- Combined Heat and Power (CHP) Partnership
- Energy STAR – joint program with USEPA and Department of Energy
- Document and voluntarily report:
- GHG emissions and reductions.
- Freshwater usage and risks to availability
- Discharges to waters
- Materials management
- Implement voluntary reduction of GHG emissions. -> Cimarron can assist with this reduction of GHG emissions (IQR) and providing the necessary equipment.
Why Disclose GHG Emissions
- GHG emissions are one key performance indicator used to for ESG rating/score
- Establish baseline GHG emissions and track progress
- Discover risks and opportunities
- Stay ahead of expected future regulation of GHG emissions
- Improve company reputation
- Increase competitive advantage
Voluntary GHG Disclosure Systems
Voluntary GHG reporting would be a part of a company’s ESG score/rating. Some systems for this include:
- CDP – formerly known as Carbon Disclosure Project. CDP is a nonprofit that manages a global environmental impacts disclosure system for investors, companies and governments.
- Natural Gas Sustainability Index (NGSI). The NGSI protocol standardizes calculation and reporting of methane emissions intensity. The protocol is intended to support voluntary reporting by U.S. natural gas supply chain companies from the production through distribution segments.
- The Climate Registry (TCR) – a non-profit organization governed by U.S. states and Canadian provinces and territories. TCR assists North American organizations to reduce, measure, report, and verify their carbon footprints and GHG reductions.
ESG and GHG Reporting Guidance
- IPIECA Sustainability reporting guidance for the oil and gas industry
- IPIECA / API / IOGP Petroleum industry guidelines for reporting greenhouse gas emissions, 2ND Edition 2011.
- Task Force on Climate-related Financial Disclosures (TCFD). TCFD developed recommendations for climate-related disclosures for investment, credit, and insurance underwriting decisions.
GHG Calculation Methods
- Greenhouse Gas Protocol – standardized system to measure and manage GHG emissions from private and public sector operations, value chains and reduction actions. Includes Scope 1, 2 and 3 emissions.
- Compendium of Greenhouse Gas Emissions Methodologies for the Oil and Gas Industry. American Petroleum Institute, Washington DC, August 2009.
- USEPA GHG Reporting Program rules in 40 CFR Part 98 Subparts C and W. These regulations include calculation methods for Scope 1 facility direct emissions from the petroleum industry.
Future of ESG
BlackRock, a multinational investment management corporation, stated publicly that companies need improved disclosure of climate risks should be given to shareholders. This may increase the reporting of ESG metrics by corporations.
News reports in December 2020 indicate that the Biden administration will require disclosure of climate risks and greenhouse gas emissions. This would be a part of Securities and Exchange Commission (SEC) rulemaking and guidance on the federal monitoring of ESG issues. Biden Administration, SEC Climate Change Risk and ESG Disclosure
Also, there is a need for a standardized reporting for ESG. The American Petroleum Institute and prepared a guidance document for ESG reporting for the oil and gas industry. See link: API/IPIECA – Oil And Gas Industry Guidance On Voluntary Sustainability Reporting
ESG reporting will become more common as social pressure and governments require more responsibility and transparency for company operations. A large component of ESG reporting is the reporting of GHG emissions and associated reductions. Companies that act now may enhance their reputation, attract more capital investors, reduce risks to their operations and improve their sustainability. All companies should consider implementing a system for their ESG plan of action and reporting.
Cimarron – Who We Are
Cimarron’s vision is to work with our clients to create a cleaner environment.
The company engineers and manufactures environmental, production and process equipment for the upstream, midstream and downstream energy industries, as well as environmental control solutions for biogas at wastewater facilities, digester tanks and landfills.
Cimarron offers our customers the know-how and environmental expertise to meet the environmental standards of today and tomorrow. Cimarron is committed to bring value to the Energy industry and their shareholders based on our financial strength, experienced personnel, and engineering capabilities.
As a company, we thrive every day to make a difference through innovation (e.g. ESG), customer focus, and operational efficiency. In addition to being present in all major regions in the US, Cimarron serves more than 45 countries around the world, ranging from offshore to desert. From key operational centers in the United States, Italy and the United Arab Emirates, Cimarron offers ongoing service and support through its own field service personnel and strategic third-party partners, creating a cleaner environment for our customers and their shareholders.
Since its founding in the mid-1970’s in Oklahoma, the company’s product offering has expanded from production equipment to include the largest line of environmental solutions that capture or incinerate fugitive vapors. With the acquisitions of HY-BON/EDI in 2019 and AEREON (including Jordan Technologies) in 2020, Cimarron has added strong brands, products, and services to its portfolio.