What is ESG? It’s shaping how pipelines do business

Three letters – E-S-G – are shaping how the energy industry does business. The letters represent environmental, social and governance. And those are some of the performance measures lenders and investors consider when they make decisions for responsible or sustainable investments.

ESG isn’t a fad that will go away soon. It’s here, it’s important, and it affects how companies operate their businesses.

Today’s blog post is the first in a series in which we’ll look at what ESG is and what it means for the pipeline industry.

 

What is ESG? And what’s involved in ESG reporting?

 

The concept of ESG isn’t new to Canada – or our energy industry. Canadian energy companies, including oil and gas producers and pipelines, adopted world-leading environmental, social and governance standards decades ago. Those standards fell under the banner of corporate social responsibility (CSR) or sustainability. It’s only recently that the term “ESG” became a mainstream term for performance in those important areas.

ESG performance measures cover three factors.

  1. Major environmental issues, such as environmental protection and emissions reduction.
  2. Social issues, like labour practices and talent management.
  3. Governance issues, such as board diversity and executive pay.

 

Over time (but sooner than later) companies won’t be able to access capital markets without first providing reliable information on their ESG performance. For several global stock exchanges, ESG reporting is now a requirement. And this means, on an annual basis, publicly traded companies will have to disclose complete and accurate information about their performance against ESG targets.

The financial impact of surges in sustainable investing – that’s where investors incorporate sustainability factors into their investment decisions – is huge. According to National Bank of Canada, sustainable investing reached over US$30 trillion in 2018. And that’s a jump from US$23 trillion just two years earlier.

 

How are pipeline companies responding to ESG?

 

Canada’s pipeline companies welcome the opportunity to highlight their ESG performance. Here are just some of the ways Canadian Energy Pipeline Association (CEPA) members respond to ESG requirements:

  1. On environmental factors, CEPA members make major investments in new technologies and practices to reduce our environmental footprint, lower the risk of a spill, and improve energy conservation.
  2. On social factors, Canada’s pipeline companies work tirelessly to create lasting relationships based on mutual benefits with several groups, including employees, local communities, and Indigenous communities.
  3. On governance factors, our members know that sustainability begins and ends with leadership. So, they are increasingly incorporating ESG into their governance structures.

 

ESG opportunities for Canada

 

As capital markets look to environment, social and governance performance for where to invest, Canada is at a distinct competitive advantage. We are one of the world’s most responsible global oil and gas suppliers. That’s because we develop and transport our resources under some of the strictest environmental and social standards in the world. And, despite major growth in renewables, we know oil and natural gas will remain essential parts of the energy mix for decades to come.

As global demand for reliable and affordable energy continues to rise, Canada’s pipeline industry is evolving as a leader in supplying cleaner, responsible energy to the world. It’s fair to say CEPA members have been leading the way on ESG performance for quite some time.