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ESG in the Oil and Gas Industry

When investing in oil companies, ESG factors are taken into account to assess the company’s sustainability and long-term prospects. Some of the most important ESG-related drivers/indicators for oil companies are:

  1. Environmental: Climate change, greenhouse gas (GHG) emissions, oil spills, and environmental degradation are some of the key environmental factors to consider when investing in oil companies. Assessing a company’s commitment to reducing its carbon footprint and transitioning to clean energy sources can provide insights into its long-term sustainability.
  2. Social: Social factors such as employee health and safety, labor practices, and community engagement are critical in evaluating an oil company’s ESG performance. It is important to look at how the company treats its workers and engages with the communities in which it operates.
  3. Governance: Governance factors such as board composition, executive compensation, and shareholder rights can also have a significant impact on an oil company’s ESG performance. Strong corporate governance practices can help ensure that the company operates in a responsible and sustainable manner.
  4. Risk Management: Oil companies face various risks, including financial, regulatory, and operational risks. Effective risk management strategies and systems can help a company mitigate these risks and ensure its long-term success.
  5. Innovation and Technology: Companies that are investing in innovative technologies to improve their environmental performance, such as carbon capture and storage, can be seen as more sustainable and better positioned for the future.

MSCI Indicators for Peer Comparison:

Environmental (Climate Change):

  • Carbon emissions
  • Climate change vulnerability
  • Financing environmental impact
  • Product carbon footprint

Envrionmental (Natural Capital):

  • Biodiversity & land use
  • Raw material sourcing
  • Water stress

Environmental (Pollution & Waste):

  • Electronic waste
  • Packaging material & waste
  • Toxic emissions & waste
  • Environmental Opportunities 
  • Opportunities in clean tech
  • Opportunities in renewable energy

Social (Human Capital):

  • Health & safety
  • Human capital development
  • Labor management
  • Supply chain labor standards

Social (Product Liability):

  • Chemical safety
  • Financial product safety
  • Insuring health & demographic risk
  • Privacy & data security
  • Product safety & quality 
  • Responsible investment

Social (Stakeholder Opposition):

  • Community relations
  • Controversial sourcing
  • Social opportunities 
  • Access to communication
  • Access to finance
  • Access to health care
  • Opportunities in nutrition & health 

Governance (Corporate Behavior):

  • Business ethics 
  • Tax transparency 

Governance (Corporate Governance):

  • Accounting
  • Board
  • Ownership
  • Pay

The ratio of sales from renewable energy businesses to consolidated sales is a financial metric used to assess a company’s level of commitment to renewable energy sources. This ratio is an important indicator of a company’s transition to a more sustainable business model. A higher ratio suggests that the company is investing more in renewable energy sources and is less dependent on traditional fossil fuel-based businesses. This can be a positive signal for investors who prioritize sustainable and socially responsible investments. However, this ratio should not be the sole factor considered when evaluating a company’s ESG performance. 

The amount of CAPEX or strategic investment in hydrogen, ammonia, and offshore wind power are key financial indicators that can help investors assess a company’s commitment to renewable energy and its potential for future growth. Hydrogen and ammonia are seen as promising renewable energy sources that can potentially replace fossil fuels in various sectors such as transportation and energy production. Offshore wind power is also gaining momentum as a sustainable energy source due to its high energy yield and low carbon footprint.


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