BEST PRACTICES FOR IMPROVING AND EVIDENCING ESG PERFORMANCE
This is the third of a three-part series covering the trends, facts, data and cultural movements driving the global transition to a carbon-neutral economy and impacting the global oil and gas business today.
It’s not the strong that survive a crisis, it is those who adapt. Today’s demand-driven challenges and changing investor preferences in the oil and gas markets require Energy companies to adapt.
In the first installment of The Great Energy Transition series, we discussed the growing body of knowledge and data that is forming a new cultural landscape and driving regulatory change. We also introduced the economic opportunities that the shift is creating for proactive oil and gas producers, utilities, pipeline operators and other players in the energy complex.
In the second installment, we focused on how Wall Street and institutional investors are reacting and pressuring the industry for greater transparency regarding emissions and ESG reporting.
In this third installment, we further the conversation by highlighting best practices for reducing emissions, optimizing operational practices and evidencing Environmental, Sustainability and Governance (ESG) performance companies can adopt to strengthen their social license to operate and develop a preference on Wall Street.
The Role of Independent Certification
In Part 1 we introduced the emerging market opportunity in Responsibly Sourced Gas, or “RSG.” RSG is natural gas produced from well sites and facilities with emissions levels below the industry average. On the surface, RSG offers the energy industry an opportunity to differentiate a commodity product – natural gas – in a meaningful way that addresses stakeholder concerns about emissions, climate change and energy security.
Responsibly Sourced Gas is an appealing idea, but the one big question it presents is – What organization can be a credible arbiter of what “Responsibly Sourced” means?
Any valid certification must come from an independent observer free from conflicts of interest is essential to avoid charges of greenwashing. Fortunately, there are examples of ethical branding in other industries, such as fair-trade coffee, dolphin-safe tuna and conflict-free diamonds.
In the energy industry, Independent Energy Standards Corporation (IES) has pioneered the concept of ethical branding with its TrustWell™ certification program. The TrustWell certification program is a multivariate, independent audit and evaluation to verify and provide assurance on well integrity, control measures and environmental performance ratings covering water, air, land and community factors. Depending on the certification audit results, IES assigns one of four levels of certification ranging from merely “Rated” at the low end to “Platinum” at the highest level. Operators can use the higher levels of certification to prove to consumers, such as utilities and industrial users, that they are purchasing, distributing and using natural gas that is produced from operations known and verified for having low emissions. IES reported in 2019 that it had certified 2,500 natural gas wells in its TrustWell Responsible Gas Program.
To date, there have been six RSG supply contracts signed between natural gas producers and large consumers, including utilities and corporations. Although still in its nascent stages, RSG is a market likely to grow in size and importance as the public, regulators, investors and lenders pressure the industry to reduce emissions.
Strengthening Certifications with Continuous Monitoring
Management guru Peter Drucker said that if you can’t measure something, then you can’t manage it. That’s also true with ESG performance.
Setting emissions reduction goals is a step in the right direction but being able to measure and evidence it is altogether a different thing. Current methods of estimating fugitive emissions are better than nothing, but are typically unreliable, are available only at the end of a quarter and again, are merely estimates.
In order to effectively meet reporting standards developed by the Sustainability Accounting Standards Board (SASB) to provide the highest levels of assurance to key stakeholders, including the investment community, consumers, regulators and others, new methods of emissions monitoring are needed.
Instituting independent certification is a significant step forward in managing The Great Energy Transition. However, without instituting new technology and best practices, certifications are only valid as of the day they are made. Afterwards, changes to well site conditions and equipment resulting from normal wear and tear, maintenance and repair practices, weather conditions and other variables can degrade the factors on a site.
Natural gas producers already have Leak Detection and Repair (LDAR) teams in place to make periodic inspections of well sites and facilities. They employ infrared cameras to spot fugitive emissions from pipeline connections, storage tanks, combusters and other surface equipment. Once a leak is identified, the LDAR crew can repair it on site. The weakness of this operational process, however, is that depending on the inspection schedule, several months can elapse between inspections.
The best practice is continuous monitoring of emissions at the well site or production facility, which provides real-time data that can be used to optimize LDAR teams, fix leaks faster and provide auditable, reliable data to investors and other stakeholders. Unlike intermittent emissions monitoring using satellites, aircraft, drones and “sniffer” vans, continuous monitoring uses durable sensors mounted at the fence line, providing 24/7 coverage of emissions events at the site.
Continuous monitoring technologies are both technically and commercially feasible today and represent the most effective way forward for evidencing ESG performance and strengthening the industry’s social license to operate among investors, regulators and the general public.
Benefits of Continuous Monitoring:
- A continuous monitoring solution is the best practice for monitoring air emissions.
- Real-time notifications empower Operations and HSE management to respond to potential leaks and events faster than non-continuous options.
- Continuous monitoring by an independent party means E&P operators can assure stakeholders they are using the most effective, advanced technology to reduce methane intensity, enhancing the corporate reputation and brand.
- Improves the well site safety profile.
- No changes are required to existing production processes and activities.
- Typically, more affordable than less reliable methods.
- Independent data allows oil and gas producers to provide assurances that emissions levels are being achieved, providing customers a differentiated RSG alternative.
The natural gas industry is moving towards creating ethical branding of its commodity with Responsibly Sourced Gas certifications. The validity of certifications and acceptance by key stakeholders, however, rests on data quality and sourcing. Independence is essential for establishing and maintaining credibility of ESG reporting used by institutional investors, lenders, Boards of Directors and regulators.
Certification is a big step in the right direction for creating an RSG market and managing The Great Energy Transition to a carbon-neutral economy. Without adoption of the best practice of continuous monitoring, however, certifications are vulnerable to the use of estimates and charges of greenwashing.
The Great Energy Transition to a carbon-neutral global economy is underway. The data has driven a permanent shift in culture and public opinion. As momentum grows, calls to reduce emissions of greenhouse gasses will continue to influence energy policy and consumer preferences in the coming decades. RSG offers natural gas producers and utilities the opportunity to differentiate their commodity in such a way it can fetch a premium price, reduce the cost of capital and strengthen the industry’s social license to operate.