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Oil & gas producers short-changing shareholders by not setting public goals, by David Schatsky

Oil and gas producers are not doing themselves, or their shareholders, any favours by keeping their sustainability goals to themselves.

Goals signal intent and drive behaviour. Some companies use public announcements of sustainability goals to signal their commitment to become sustainability leaders and to compete for superior positioning with their rivals. In dozens of interviews with sustainability executives, however, I have observed that companies’ practices for selecting and managing sustainability goals vary widely.

In a recent study of 11 of the largest oil and gas producing companies, for instance, my research company found that more than half of the companies have not announced any specific, quantitative environmental sustainability goals. The industry has the distinction of having a lower degree of goal setting than any other industry we have covered to date, including pharmaceuticals, food and beverage, computer manufacturing, telecommunications and banking. Among the oil and gas companies with no public sustainability goals are two Asia-based concerns, Petro China and SinoPec.

This is not to say that the companies aren’t working to reduce their environmental impacts. Indeed, all of the companies we studied report on their environmental performance and describe initiatives they take and investments they make to reduce environmental impacts.  PetroChina, for instance, touts its RMB50 million donation to the Carbon Sequestration Forest Project organized by the China Green Carbon Fund. SinoPec reports that it reduced sulphur dioxide emissions by 35.7 per cent during its 11th Five-Year Plan period.

But few companies in the industry announce specific, forward-looking goals - and this has raised a red flag for shareholders and the public. That’s why several oil and gas companies have faced shareholder resolutions demanding that the company adopt public greenhouse gas reduction targets.

Our research has found that when companies refrain from setting public sustainability goals, it’s generally for one or more of these reasons:

  • Immature sustainability strategy hasn’t yet identified key issues and appropriate goals
  • Immature measurement and management systems make goal setting impractical
  • A conservative culture avoids making public commitments if there is a risk of not being able to meet them
  • For competitive reasons (secrecy, freedom of movement), companies do not want to telegraph their plans

Since public goals can be such a powerful means of communication—and powerful driver of internal behaviour—companies may end up selling themselves short if they avoid setting goals for the wrong reasons.

A recent study by McKinsey & Company identifies three different levers companies can use to create value. The value creation levers are growth, return on capital, and risk management. The McKinsey study finds that sustainability has a role to play in all three. According to McKinsey’s framework, a growth strategy may involve innovation and new products or reaching new customers and markets; a strategy of improving returns on capital might feature increasing the environmental performance of operations; a risk management strategy could entail regulatory or reputational management. A focus on sustainability presents extractive industries such as oil and gas with significant value creation opportunities, according to McKinsey.

To the degree that oil and gas companies are failing to vigorously pursue sustainability goals, they may be short-changing shareholders.

David Schatsky is principal analyst and founder of New York-based Green Research , a research, advisory and consulting firm focusing on clean tech, alternative energy and corporate sustainability.

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