Industry participants may have taken note of the news earlier this month that Québec's main natural gas distributor, Énergir, entered into a responsible natural gas supply agreement with Alberta-based Seven Generations Energy to purchase roughly 10% of Seven Generations gas production. The deal is the first of its kind under the EO100 Standard for Responsible Energy Development, an independent certification for assessing environmental, social and governance (commonly referred to as "ESG") standards. This partnership is part of a broader initiative by Énergir for the responsible procurement of natural gas, developed in collaboration with the Pembina Institute. Énergir, which has also been an active proponent of Renewable Natural Gas development, plans to obtain nearly 20% of its natural gas supply from similarly certified producers in the first year of the initiative.
The EO100 Standard was developed by the non-profit Equitable Origins to assess and certify energy producers according to their ESG performance. Seven Generations is the first natural gas producer to obtain the EO100 Standard certification.
The Énergir/Seven Generations transaction is one example of an ongoing shift in the energy sector. Industry participants from oil and gas producers to financial institutions and insurance companies are increasingly prioritizing ESG principles as core business elements. Robust, transparent and forward-looking ESG policies not only bolster public relations but also provide real competitive advantage through improved access to capital, insurance coverage and strategic partnerships. ESG is more than a communications strategy - it is quickly becoming a fundamental part of successful businesses.
ESG standards are non-financial factors used to measure the sustainability and social impact of a company's operations and decision-making. More and more, ESG metrics are disclosed in annual or sustainability reporting practices. ESG standards commonly include the following factors:
- Environmental: Climate change and carbon emissions, air and water, waste management, biodiversity
- Social: Gender and diversity, social impacts, community relations and development, Indigenous rights, human rights, labor standards
- Governance: Board composition, anti-bribery and corruption, executive compensation, transparency and business ethics, political contributions, whistleblower schemes
Corporate reporting practices are no longer intended to be solely for the benefit of a company's shareholders and financial institutions. Stakeholders of all stripes are now demanding transparent assessment and reporting of ESG performance. Integrating ESG factors within the business decision-making process leads to comprehensive assessment of material risk and growth opportunities. It is now recognized that ESG issues can directly impact financial performance and the implementation of ESG policies is essential to ensure a company's long-term sustainable performance.
While governments continue to struggle with competing views of the economy and the environment, industry leaders have not been sitting idle. Bigger players like Suncor, Lundin and Cenovus, to name a few, have already implemented robust policies, sustainability goals, and comprehensive reporting and assessment programs.
Last year, Suncor released its Report on Sustainability, consolidating "company-wide economic, environmental, safety and social performance" data for assets operated in 2018. The report focused on Suncor's four material sustainability priorities: Indigenous relations, climate change, operational safety and reliability, and water stewardship, as well as other ESG factors. Suncor prepared its report in accordance with Global Reporting Initiative Standards, Sustainability Accounting Standards Board standards, and reporting recommendations by the Task Force on Climate-related Financial Disclosures. The report integrates Suncor's "commitment and implementation" of the Ten Principles of the United Nations Global Compact (UNGC), which focus on corporate sustainability. Suncor also released its annual Climate Risk and Resilience Report, allowing stakeholders to monitor its progress on its greenhouse gas emissions goal of reducing emissions intensity of the production of oil and petroleum products by 30% by 2030.
An international example is the announcement earlier this year by Lundin Petroleum AB of its Decarbonisation Strategy targeting carbon neutrality by 2030, and its proposed name change to Lundin Energy AB in order to reflect "its role in supplying the energy transition with the most sustainable oil and gas production possible as an essential part of the future energy mix". Lundin also releases annual sustainability reports, integrating many of the same reporting standards and principles mentioned above.
At the outset, the 2018 Cenovus Environmental, Social, Governance Report lays out the relevant stakeholders and the various approaches used to engage with each of them. Earlier this year, Cenovus released its ESG sustainability targets in four core focus areas: climate and greenhouse gas emissions, Indigenous engagement, land and wildlife, and water stewardship. Cenovus' Indigenous engagement target is focused on "supporting economic reconciliation through business partnerships". More recently, Cenovus announced important funding to build homes in Indigenous communities near its oilsands operations.
Conclusion - Being Part of the Transition
ESG metrics are now a key, perhaps even critical, component for successful project development. With Indigenous rights, community engagement, and climate change sure to remain at the forefront of discussions in the Canadian energy sector for some time, businesses investing sufficient resources in ESG today will be those challenging for market share tomorrow.
The writers note and appreciate the contributions to this article from James (Jim) Smellie, Jay Lalach, and Sean Corrigan. If you have any questions or would like to discuss environmental, social, and governance considerations for your business, please contact the authors or other members of the Gowling WLG (Canada) LLP Energy or Natural Resources Group.