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The Emergence of ESG

By Jennifer Cutaia, Vice President, Public Policy & Social Impact, Baker Hughes

Jennifer Cutaia

Jennifer Cutaia is Vice President, Public Policy and Social Impact, Baker Hughes. Jennifer currently serves on PESA’s ESG Committee.

Building a corporate responsibility framework can be an exhaustive undertaking. Change is a constant in the energy industry with technological innovation, mergers and acquisitions, new discoveries and markets, and improved operational efficiencies.

 

Companies must factor another layer within these dynamics – the emergence of environmental, social and governance (ESG) as a performance indicator of responsible business practices. Although ESG has been a consideration within the investment community for more than a decade, its relevance to the energy industry is clear.

THE OLD WAY: CSR
You are probably familiar with the internal grappling in years past of what corporate social responsibility (CSR) means for the sector and the process of rationalizing why an oil and gas company would voluntarily place itself under public scrutiny, not to mention unnecessarily increasing the visibility of the services and equipment sector. Many wondered if integrating CSR reflected an industry jumping on a bandwagon to a fleeting campaign? Then again, some thought how would their company be perceived if they were the last of their peers to adopt CSR? Would not adopting CSR single an organization out?

EMERGENCE OF ESG
In case you haven’t noticed, there has been a remarkable rise in ESG and the momentum is growing. Different than CSR, ESG brings a welcomed abundance of clarity for the energy industry. Coupled with our innate drive to solve hard problems, ESG means a more focused, collaborative effort on solutions to global priorities.

Each important area of environmental, social and governance is highly visible as a core indicator to a company’s sustainable success. ESG solves the unnecessary confusion in CSR, which is sustainability and social responsibility.

ESG brings environment to the forefront, a subject often overshadowed in early industry CSR reporting by the breadth and depth of occupational health and safety policies and programs. In particular, how an organization manages environmental risks such as climate change is now more clearly a measure within an ESG score.

The full range of social issues – including how well a company identifies and manages human rights risks within its supply chain, as well as gender equality and equal pay – are spurring the entire industry to address gaps. Strong corporate governance, and in particular, how directors and management factor the range of potentially impactful environmental and social issues on the business into their decision-making, is made even clearer within ESG frameworks.

ESG is becoming integrated into strategic decisions within industry rather than treated as “nice to do” but as an essential initiative. This is evidenced by how companies are reshaping their portfolios as they prepare for the opportunities of a low-carbon future.

TAKING ACTION ON GLOBAL PRIORITIES
Connecting responsible business practices to global priorities encourages innovation for a stronger industry and technology and services sector and better future. As an example, in 2019 Baker Hughes became a participant in the U.N. Global Compact with a commitment to voluntarily report its progress toward the Ten Principles on human rights, labor, environment and anti-corruption and more broadly, on the U.N. Sustainable Development Goals.

Early this year, the company took a public commitment to reducing its carbon equivalent emissions 50% by 2030 and to achieving net-zero emissions by 2050, in line with the Paris Climate Agreement.

Oil and natural gas will continue to fuel the global economy, and it’s up to us to show social responsibility and care towards a host of issues. As an industry, and as individual companies, we must take steps to build the energy industry of the future while generating strong returns and long-term value for our shareholders.