Companies are increasingly required to demonstrate the socioeconomic value of projects to gain operating approval from national governments, secure capital from investors and financiers, or uphold their brands in the court of public and consumer opinion. These requirements are only intensifying as many countries face unprecedented economic and development challenges, particularly in low-income countries that were already struggling to meet basic needs and are now being hammered by COVID-19.
Companies focused on oil and gas extraction, in particular, face escalating pressure from investors, governments, and activists to reduce greenhouse gas (GHG) emissions as part of this broader demand for good corporate citizenship. Against this backdrop, the United Nations (UN) Sustainable Development Goals (SDGs) offer a viable and universally recognized framework for energy companies to use in taking up the challenge. This article offers some concrete suggestions for how to go about doing so.
Value of SDGs
The SDGs were developed to spur and measure progress in improving life for all the world’s people. Agenda 2030—an initiative led by the UN and adopted by all 193 member states—identifies 17 goals that collectively lay out a roadmap for greater social equity, environmental sustainability, and more inclusive economic development. The framework includes 169 targets and 232 indicators across the 17 goals, making it a robust tool for measurement and reporting of progress. The SDGs present energy companies with a valuable opportunity to align their energy transition and corporate sustainability efforts more closely with government initiatives for sustainable development.
The reasons to do so include:
|Attracting Investment||ESG (environmental, social, and governance) investment funds have doubled in size and number over the past three years and the SDGs provide a clear framework for companies to align with ESG principles and increase investment.|
|Minimizing risk and improving social license to operate||Comprehensive in scope, the SDGs allow companies to employ a framework to which all countries have signed up, and can help guide companies to effectively address local issues where they arise.|
|Enhancing reputation and competitiveness||Nearly three quarters of the world’s largest companies express commitment to the SDGs in their sustainability and annual reports, and articulate the importance of sustainability for business operations.|
|Improving talent recruitment and retention||Employees increasingly value environmental and social responsibility in their employers. In the United States, for example, a survey of 1,000 people found that 70 percent of employees factor their company’s sustainability plan into their long-term career choices.|
|Nurturing relationships with host and home countries||Governments worldwide are attuned to the SDGs and value (and in some cases mandate) communication of activities tied to the SDGs for their own reporting.|
The business case for getting behind the SDGs is clear and widely accepted. And so is the development case: currently, the world is not on track to meet the 2030 goals, so strengthened partnerships and greater corporate participation are vital.
Bringing the SDGs into Strategy and Operations
So, how can energy companies better incorporate the SDGs in their strategy and operations? The clearest links between the SDGs and the energy sector are SDG 7—Ensuring Efficient and Affordable Energy, which is energy companies’ core mandate, and SDG 13—Climate Action.
With regard to the latter, numerous companies have made GHG emission reduction declarations in recent years; some have gone further than others, including six multinational oil and gas companies that have committed to cut net GHG emissions between 80 and 100 percent by 2050 across Scope 1, 2, and 3 emissions.
Several oil and gas companies have embraced the energy transition, leveraging their experience in the oil and gas sector to pursue renewable energy development, particularly on-shore and off-shore wind. With some commentators deeming peak oil demand already “upon us,” the commercial allure of energy transition and diversification is strong. This impending demand plateau, paired with increasingly progressive energy regulations and record-low hydrocarbon prices, make the business case for energy transition evident.
Beyond their efforts to deliver affordable energy and action on climate, energy companies have the wherewithal to support material progress across the SDGs, if they take the right approach. Following are suggestions outlining how energy companies can support the SDGs in ways that benefit both host country development and their own company’s sustainability.
- “Bake in” the SDGs from the beginning. It is easier to adhere to the principles and practices of the SDGs if they are included from the very beginning of a capital project. For example, during the Environmental and Social Impact Assessment (ESIA) stage, proponents can incorporate the host country’s particular SDG focus areas into the ESIA study themes, collecting data in line with SDG targets and then setting up the Environmental and Social Management Plan to measure against those particular indicators. During consultation with communities and government, using the SDG lens of inclusiveness and sustainable development will help lead to a relationship and activities that address the true development needs of the host government and citizens. New renewable energy actors would do well to heed the lessons learned (both positive and negative) from oil and gas in taking a serious approach to stakeholder engagement, community development, and inclusive programming, all of which can be guided by the SDGs.
- Tap key supply chains. There are numerous opportunities along the energy supply chain to expand social and environmental efforts, from Tier-1 contractors to small subcontractors and suppliers. Majors can push requirements to their suppliers and, with proper support and guidance, smaller companies, which have the same incentives to embrace SDG-promoting activities and reporting. Adding operating practices such as energy efficiency and gender equality to current environmental and Health, Safety, Security, & Environment requirements will strengthen these supply chains in the long run, and aid companies in reaching their Scope 2 and 3 emission reduction targets.
- Promote local content. Local sourcing of goods, services, and labor into an energy project yields time, distance, and cost savings, and also contributes to a country’s economic development by generating more local jobs and contracts (thereby directly supporting SDG 8—Decent Work and Economic Growth). The localization of supply chains can also mitigate a company’s GHG emissions by reducing transport distances. To take advantage of this opportunity, companies should invest in supply and demand analysis to understand how best to use local talent and production in their operations.
- Undertake meaningful reporting. Many oil and gas companies already map their activities to the SDGs. Total and Chevron, for example, both use the entire spectrum of goals to guide and monitor their sustainability around the world. Companies should continue to publicly report their efforts toward the SDGs, but also enhance their evaluations to identify results demonstrating tangible outcomes and impacts, as opposed to mere inputs and outputs (such as amount of money spent and number of people trained). For instance, Shell is investing in innovative energy solutions including mini-grids and home solar systems, with the goal of delivering reliable electricity to 100 million people by 2030—an investment Shell has directly linked to SDG 7.
- Identify partners for impact. It is significant that SDG 17 is focused on operationalizing the SDGs through partnerships. Although Agenda 2030 is a government-led initiative, it explicitly states that the public sector cannot meet the goals alone, and calls on the private sector to support. Companies can implement activities in support of the SDGs by internally taking on the opportunities outlined above, as well as working with complementary partners such as donors, companies, academia, and NGOs to leverage technical skills and financial resources. We are already seeing more and more oil and gas stakeholders working toward these goals in concert, from IPIECA, the IFC and UNDP jointly creating an Atlas—which maps oil and gas impacts and potential contributions to the SDGs—to eight energy majors agreeing to the six Energy Transition Principles focused on reducing emissions and increasing transparency.
While many energy companies are already undertaking some of these activities, more will be expected of them in the coming years. At DAI, we have seen an increased emphasis on using the SDGs in project development. We have supported energy majors to harness the benefits of the SDGs, from mapping them to positive impacts in upstream development and designing local content programs that improve company operations and host-country economies to using the SDG indicators in designing and implementing high-impact social investment projects.
Agenda 2030 remains a government-led initiative. But energy companies can and should be a part of the solution. If companies identify discrete areas where they can target their efforts and direct their immense knowledge, capabilities, and resources, all stand to benefit.