NEW ESG DISCLOSURE GUIDANCE FOR OIL AND GAS: WHAT IT IS AND HOW TO COMPLY

By James Millward and Katie Love, Brodies LLP

A company's Environmental, Social, and Corporate Governance (ESG) performance is the key measure of how sustainable and ethical its business approach is. ESG disclosures are increasingly scrutinised by investors and regulators alike as a means to hold businesses to account for their environmental performance.

The Oil & Gas Authority's (OGA) Governance guidance is expected imminently to address the 'S' and 'G' aspects of ESG, and the OGA's ESG Taskforce has already addressed the 'E' in in March 2021. From both a qualitative and quantitative view, the Taskforce has identified both short term and medium/long term metrics which are to be assessed and applied in tiers of growing importance.

While the individual metrics are worthy of detailed analysis, the overarching expectations highlighted by the Taskforce provide a good starting point to understanding what will be required. These include:

• Disclosure of climate-related data in financial reports, and/or on websites;
• Recognition of data gaps – the Taskforce will encourage and ensure better transparency;
• The requirement for disclosures to signal planned improvements over time; and
• A commitment by senior leadership to drive their businesses to gather accurate data to support robust ESG reporting.

OGA’s revised Strategy represents a further stimulus for robust ESG compliance and reporting. The strategy means Operators and Licensees are required to support the drive to achieve net zero as part of their central obligations pursuant to the Strategy.

ESG programmes for Licensees

In accordance with OGA's reporting expectations, Licensees have work to do to develop effective ESG programmes, however, this can be an issue where Licensees lack day-to-day control of operations. To counter this, Licensees can:

• Require the inclusion of specific ESG standards and requirements within all tendering processes;
• Ensure enhanced due diligence is carried out on all aspects of ESG compliance prior to appointing any Operators, whether field, installation or well operators;
• Require data sharing through the terms of the Joint Operating Agreement to facilitate appropriate reporting; and
• Ensure that senior leadership articulates and endorses a culture of ESG commitment.

Non-operators

Non-operators have reported to us that they are struggling to balance the implementation and fulfilment of credible 'E' objectives against a lack of voting power at the Operating Committee (Opcom). However, there are steps that can be taken to demonstrate commitment and adherence to environmental objectives included in financial reports and on websites. For example:

• Where the business has no controlling vote at the Opcom, it should ensure that its view on how the environmental side of the project should be managed is recorded.
• Develop a proactive system of monitoring adherence to the standard boilerplate clauses in contracts, for instance by establishing an anonymous reporting system for operatives. This will assist in identifying breaches of environmental regulations.
• Going a step further, the business can develop a process by which all parties to the JOA can raise concerns with the operator / at the Opcom, with written records being kept.

What next?

The Taskforce has recommended Operators and Licensees take time now to debate and discuss best practices of how to report and are ready to report from first quarter of 2022 before reporting on ESG factors becomes mandatory from 2023.

It is therefore imperative that Operators and Licensees use this time to develop an effective system of collating and presenting ESG related data with sufficient time to work through any issues before reporting becomes mandatory.

Read the latest issue of the OGV Energy magazine HERE.