Raising the Bar on Sustainability Reporting in the Oil and Gas Industry



Voluntary sustainability reporting by companies in all industry sectors has been on the rise for more than a decade. There has been a continual increase in reports developed by Global 500, S&P 500, and FTSE (Financial Times/London Stock Exchange) 350 companies, as well as other companies domiciled throughout the world. Not only has reporting increased, but the proportion of these reports submitted for independent, third-party verification has increased as well. And to drive consistency of reporting and disclosure around environmental, social, and governance (ESG) information, guidance is being developed on disclosure of this non-financial information (e.g., through the Sustainability Accounting Standards Board, the Climate Disclosure Standards Board).

While sustainability reporting remains mostly voluntary, certain countries are establishing requirements for development of sustainability/corporate responsibility/environmental reports (e.g., sustainability reporting in Brazil for the energy utility sector, environmental reporting for listed companies in Japan). Additionally, reporting of ESG information is on the rise in countries where such disclosure is required as an integral part of financial/securities reporting (e.g., in the European Union, the United Kingdom).

The International Petroleum Industry Environmental Conservation Association (IPIECA), the American Petroleum Institute (API), and the International Association of Oil and Gas Producers (IOGP) have been providing guidance on sustainability reporting to the oil and gas industry since 2005. In 2015, these groups jointly published the third edition of their Oil and Gas Industry Guidance on Voluntary Sustainability Reporting. The document provides an effective platform for a sustainability reporting process and program, a framework for determining the issues that are most material, and recommendations for key performance indicators (KPI) of importance to the industry.

Changes in the Third Edition

Building from the Second Edition issued in 2010, the Third Edition retains the structural changes implemented in 2010 and encourages stronger reporting and disclosure practices. New areas of emphasis include the following:

  • Strategic reporting is enhanced for each of the 12 designated sustainability issues, adding an environmental indicator for decommissioning, a health and safety indicator to explicitly address process safety/asset integrity, and alignment of the social and economic section with the United Nations Guiding Principles on Business and Human Rights.
  • Information on management approach and strategies is included to address the sustainability issue and its related impacts.
  • The emphasis on materiality is enhanced, including a new appendix that provides practical guidance on implementation of a materiality process.
  • Reporting elements within each indicator are designated as “common,” “supplemental,” and “‘other,” reflecting improved maturity and consistency of reporting by companies.
  • Reporting across the value chain and life-cycle considerations are emphasized to help ensure that all relevant business activities are addressed when reporting on material sustainability issues.
  • Indicators are mapped to the Global Reporting Initiative (GRI) G4, the current version of this most widely utilized reporting guideline.

Each of these focus areas is intended to enhance the quality and content of sustainability reports, and compels oil and gas companies to raise the bar on their own efforts.

Sustainability Reporting Process

One significant value in this guidance is a structured sustainability reporting process (see Figure 1). From establishing the vision and governance (i.e., tone at the top), to prioritizing issues and indicators, to analyzing data and assembling the report, and obtaining independent assurance, it covers the full reporting lifecycle. Additionally, stakeholder engagement is emphasized as an essential element throughout the reporting process. For companies that are just beginning a sustainability reporting journey, this process can be used as a model for virtually any industry. 

Raising the Bar Fig 1

Materiality

Material sustainability issues are those that may affect strategy or performance as viewed by company management and its external stakeholders. Use of a simple process to identify and prioritize material issues in a sustainability report establishes an appropriate level of transparency, ensures relevance and content of the report to its readers, and demonstrates that stakeholders’ views are being considered. In the course of developing the report, confirmation that priority material issues are in fact covered and in sufficient detail is essential. Following report publication, periodically seeking feedback from both internal and external stakeholders will help to determine whether the report adequately covers the priority issues and is effective as a basis for continual improvement.

Note that this guidance provides a simple approach to establishing materiality of sustainability issues, and the intent is consistent with the GRI G4 update under which a formal materiality assessment drives reporting.

Sustainability Categories, Issues, and Indicators

Sustainability reporting in the guidance is organized into specific categories, issues, and indicators. Sustainability is organized into three main categories: environmental, health and safety, and social and economic dimensions. Within these categories, 12 issue areas are identified (see text box) as a basis for defining specific sustainability indicators. In all, there are 34 indicators: 11 environmental, 5 health and safety, and 18 social and economic.

IssuesIndicators
Environmental
Climate Change & Energy
Biodiversity & Ecosystem Services
Water
Local Environmental Impact
Health & Safety Leadership
Workforce Protection
Product Health, Safety & Environmental Risks
Process Safety & Asset Integrity
Social & Economic
Community & Society
Local Content
Human Rights
Business Ethics & Transparency
Labour Practices

Several examples of issue-specific indicators are illustrated in the following figures. A simple example for Environmental is shown in Figure 2, addressing both supply of fresh water and discharges to water. 

Raising the Bar Fig 2

For Health and Safety, Figure 3 illustrates indicators specific to workforce protection, as well as the newly added indicator for process safety. 

Raising the Bar Fig 3

In Figure 4, related to the Social and Economic category, business ethics and transparency encompasses four indicators that address preventing corruption, transparency and advocacy. 

Raising the Bar Fig 4

The guidance provides the description, purpose, scope, and reporting basis for each indicator. Furthermore, the guidance describes common, supplemental, and other reporting elements for each indicator. Considering energy use, example reporting elements include those listed below.

  • Common reporting elements – total energy use
  • Supplemental reporting elements – exported energy, energy intensity by business activity, improvements in energy efficiency
  • Other reporting elements– managing energy consumption through use of energy indices; energy performance indices for refineries, chemical plants, and natural gas plants; initiatives to improve customer use of energy

This hierarchy helps companies prioritize information to be reported, and provides a basis for achieving continual improvement in the content and quality of their reports. The hierarchy is comparable to that utilized by the GRI for the Core or Comprehensive reporting options.

Conclusions

The new oil and gas sustainability reporting guidance provides a systematic and thorough process for developing sustainability reports, which is applicable to companies already reporting as well as those starting down that path. Assessing materiality is key to establishing an appropriate focus and to reporting content that reflects priorities for the company and its stakeholders. While the issues, indicators, and elements are geared to the oil and gas industry, the process is applicable to virtually any company choosing to embark on a sustainability reporting journey.