…Any company with good ESG credential stands better chance of having better community engagement.
-By Felix Douglas
Speaking at the Centre for Petroleum Information (CPI), Industry Public Symposium (IPS-XVI) with the topic: Do ESG Practices have a Place in Nigeria’s Energy Industry? Mrs. Eyono Fatayi-Williams, former General Manager, External Relations of Nigeria Liquefied Natural Gas (NLNG), pointed out clearly that any sustainable business strategy in the world of today, at least in the oil and gas industry, must incorporate Environmental Social and Governance (ESG) into its strategic objectives and business plan. This helps with long term. Each company needs to set out the principles that will guide its approach to drive ESG right from the top.
Fatayi-Williams added that ESG is important to any forward thinking oil and gas company. “I think we should really pay attention to this because the scrutiny placed on the industry I mean, they call us one of the culprits of climate change and environmental defaulter. It’s not going away in this current climate agitation as the world clamours for net zero and a cleaner greener world.”
In spite of the fact that many oil majors are going into green initiatives and renewables, ESG discussion does not exclude the development of fossil fuels since gas has been proven to continue to play a major role in the energy transition. ESG remains important for the industry. “It will help us in our industry to tell our own story correctly, set the narrative through proper ESG reporting.
According to the former NLNG External Relations General Manager, it’s clear that the investment communities have shifted towards companies that are ESG compliant which impacts what people do. As the industry embraces the issues of climate change, energy transition with scrutiny, it will remain crucial to the success of any company that wants to remain relevant and play beyond the Nigerian stage. Nigerian oil and gas companies should be playing on the African stage because the country is not only important but the biggest in the continent.
Following COP 26, many governments have started taking further measures to combat climate change. There’s been additional requirements for financial reporting disclosures. Recently, the United Kingdom (UK) came up with two new laws, specifically on ESG. The oil industry is global and in Nigeria, the regulators will step up and imbibe on ESG specific. There is need for collaboration between industry, regulators and legislation, Fatayi-Eyono added.
She revealed that access to funding is key. “In NLNG , the EL 4 funding of part of Train 7, ESG requirement credentials were a major part of prerequisites for the funding. On operationalising the host community law in the Petroleum Industry Act (PIA), technical issues of the law, any company with good ESG credential stands a better chance of having proper or better community engagement.”
She said company’s community engagement philosophy and strategy will translate to positive social licence to operate whereas future trends in the industry or global climate change will not fade away. As pressure on climate change, net zero, decarbonisation and carbon neutral, the question of ESG becomes dominant and key to any company that wants to play on the global stage.
“I keep stressing on the global stage because I think that for Nigerian companies, at least we should be playing on the continental stage.”
“Another reason is that a demand on company’s leadership to play a more crucial role in taking responsibility for company’s ESG performance and making it becoming clear that governance drives, paramental and social responsibility are not the other way round.”
To leverage on ESG for better performance in future, boards of companies must understand how they will deliver through strategies. ESG factors are globally imperative and it is important for the board, there is need to drive sustainability from the boardroom. Also, “Understand that this has become important and I’m encouraging that people who do board trainings and development should include them their agenda.”
However, there are some interesting statistics at the just concluded United Nations General Assembly (UNGA) Global Compact which was one of the side events as part of UNGA. There were statistics from a gamut of six different research organizations with a lot of data.
Some of the statistics re-stated is that ESG performance has resulted in 50% lower cost of capital because sourcing for funds is a major issue. 88% of operational performance and 80% stock price for companies that are publicly quoted, leading to a 7% higher return on equity.
Fatayi-Williams was of the view that during COVID-19, research companies with higher ESG scores performed 50% better than their peers while 99% CEOs from companies with more than a billion dollars in annual revenue believed that sustainability will play an important role to future business success. 83% of consumers think companies should be actively shaping ESG best practices and 25% employees of companies that are rated as most attractive to young talent would lean on organisations with better ESG.
Interestingly, 88% of investors believe companies that prioritize ESG initiatives represent better opportunities for long term returns. Nigeria, as a leader in Africa, needs to collaborate like CPI to create synergy in the industry and move it forward to make ESG a topical issue to advance the discussion.
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