Industry unclear on governments’ role in advancing ESG integration

The Cascade Power Project is an example of meaningful Indigenous participation with industry.

The energy industry has mixed views on how successful the federal and Alberta governments have been in advancing Canada’s sustainability story, according the results of a Daily Oil Bulletin survey of executives and ESG professionals conducted late in 2020.

The survey, sponsored by Bennett Jones, also indicates some in industry want government to take a more active role in helping standardize ESG requirements. Others, however, want government to keep its distance and allow industry to develop standards on its own.

“There is a lot of uncertainty in what role governments should play in ESG,” says Bemal Mehta, senior vice-president, Energy Intelligence, JWN Energy. “There’s been a major effort put in by the Alberta government and industry advocacy groups in changing the narrative surrounding the industry. The industry has spent billions of dollars improving its ESG performance to back this effort. However, as we can see with the current Keystone XL pipeline approval process, it has yet to pay dividends.”

“In our surveys, conversations, and reporting we see individual companies doing fantastic work in identifying and aligning interests with external stakeholders like Indigenous communities and businesses,” adds Mehta. “Companies are investing in technologies to meet environmental challenges. Corporate governance is becoming more diverse and inclusive, with E&S factors being woven into strategies, policies and practices. But all this effort hasn’t developed into a cohesive story about our industry as a whole.”

Alberta’s government has taken an active role in trying to change this narrative with the creation of the Canadian Energy Centre (CEC), along with other initiatives. Industry is split on how successful that effort has been with around 20 per cent saying it’s been very or extremely effective, around half saying it has been moderately effective, and around 30 per cent saying it has been slightly or not effective at all.

“Rather than putting weight on attempting to correct activist-driven misconceptions about the industry, it may have been a better strategy for the CEC to lean into stories about the positive progress being made,” says Mehta.

Only 10 per cent of respondents said the federal government’s efforts in supporting industry-wide ESG efforts are very or extremely effective. Over 50 per cent said their efforts are slightly effective or not effective at all.

“Many of the respondents said they would like to see the federal government support and develop a Canadian energy brand based on the sector’s ESG performance,” says Mehta. “They want to be seen by the world as a preferred supplier. There was also a recognition the federal government has a role to play in telling the energy industry’s story domestically to provinces with little experience with the industry.”

A number of respondents took this a step further, suggesting governments need to launch an education program to improve domestic understanding about the complexity and value of the petroleum sector and how it fits into the government’s vision of energy diversification.

“Survey respondents expressed frustration there is no long-term strategy guiding Canada’s resource sector,” says Mehta. “Environmental targets are being set without laying out a roadmap to get there. Communication between industry, investors and governments on the impacts of legislation and regulation is failing. It all comes back to a lack of effort to align the interests of governments, industry and investors in navigating the energy transition.”

The survey respondents identified a number of ways provincial and federal governments could help companies advance their ESG strategies. Creating consistent policies and regulations across Canada, applying to all energy sources and other extractive industries, was a common suggestion. Many respondents also said the federal government needs to apply these same rules to imports to ensure Canadian are playing on a level field.

“A significant number of respondents believe the industry is being held to a different standard,” explains Mehta. “Oil and gas imports coming into Canada aren’t facing carbon taxes or being held accountable to the same regulatory standards the Canadian industry faces. Renewable energy sources aren’t facing the same scrutiny throughout their value chain from the manufacturing of technologies down to reclamation. ”

Providing financial support for ESG initiatives that are priorities but can’t meet economic hurdles also had broad support.

“This funding concern is focused mostly on helping build skills and business capacity in Indigenous communities,” says Mehta. “If you look at recent efforts with LNG Canada to bring Indigenous workers and businesses on board, it is clear we’re making progress on these kinds of social investments. The oilsands have also been successful in building partnerships and growing the Indigenous workforce and creating new businesses. But at a fundamental level, the federal government needs to provide more funding, and the provinces need to provide better access to opportunities. There is a clear need to help Indigenous businesses scale up to compete for larger contracts. There is also a clear need to help these businesses broaden their geographic markets to compete for work outside their traditional areas.”

“There have been some real success stories in Alberta recently involving meaningful Indigenous participation with industry," says Will Osler, partner in Bennett Jones’ Calgary office. "In 2020, construction began on the innovative and precedent setting Cascade Power Project, where six First Nations participated through an investment syndicate with the backing of the Alberta Indigenous Opportunities Corporation. In 2019, there was the sale by Canadian Utilities and Quanta Services of Alberta PowerLine, the award-winning Fort McMurray West 500-kV transmission project, resulting in seven Indigenous communities acquiring a 40 per cent equity stake. However, much more can be done to achieve meaningful Indigenous ownership in energy infrastructure projects."

Respondents were mixed on whether governments should play a greater role in setting ESG standards and standardizing disclosures. While the large majority felt ESG disclosure and reporting needs to be standardized and aligned with government disclosure and reporting requirements, many felt the government was the wrong organization to lead the charge.

“This pressure to standardize ESG reporting and disclosure isn’t unique to Canada,” says Mehta. “Efforts are underway globally to standardize ESG reporting and integrate ESG into financial reporting, largely driven by investors. But some survey respondents said while this investor-driven effort is needed, in Canada we are facing some broader ESG issues beyond the risk management challenges that concern investors that need a made-in-Canada solution. At this level, they said the government needs to play a part in setting out clear expectations, performance indicators and metrics to measure success.”

The Daily Oil Bulletin ESG Executive & Professional Survey was sponsored by Bennett Jones and completed from Oct. 15 to Nov. 20, 2020. There were over 150 responses, with 35 per cent executives/board members; 30 per cent senior managers/managers; 25 per cent ESG professionals and specialists; and the remainder consultants and related occupations.

Fact Box: What industry said:

  • ESG is still evolving. The lack of standards and comparable weighting between ESG auditors is problematic, but the last thing we need is for Ottawa to think it can bring clarity, consistency and reliability to the service.
  • There is a need to balance operational and economic realities with often unclear or unrealistic ESG targets. In my experience, government looks at ESG in a vacuum, which does not translate well to implementation.
  • First, governments need to align on exactly what they are looking for from oil and gas. They need to make their expectations clear, aligned with the investment community, with consultation with oil and gas, understanding that oil and gas has a role to play in the energy transition. Then support those priorities via regulation, especially when it comes to leveling the playing field between domestic and international producers.
  • Governments need to improve domestic understanding about the complexity and value of the petroleum sector and how it fits in the long-term view of energy diversification.
  • They need to develop more made-in-Canada strategies, as these are ones that will have the greatest impact on ESG, the lowest GHG emissions, and best reflect Canadian values.

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Environmental, social and governance (ESG) risks are coming to the forefront in the oil and gas industry as companies across the supply chain work to successfully navigate the changing energy landscape. In late 2020 the Daily Oil Bulletin, in partnership with law firm Bennett Jones, surveyed executives and ESG professionals to understand the progress being made in integrating ESG into business operations, and what is needed to push ESG forward. This five-part series outlines those survey results.

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