Energy companies: Sustainability strategies in corporate governance

Introduction

Today, oil companies face unprecedented challenges. Pressure to adopt more sustainable practices, regulatory demands and consumer expectations are forcing these organizations to rethink their business model. Within this scenario, sustainability strategies have become a key component to ensure long-term viability and competitiveness.

But what do these strategies consist of and how can they be implemented effectively? This article will explore these questions, highlighting the main ESG (environmental, social and governance) criteria that should be integrated into corporate management in the energy sector.

What does the term sustainability mean?

Sustainability is about maintaining or preserving a balance in the use of natural, social and economic resources in a way that meets current needs without compromising the ability of future generations to meet theirs. In other words, it is about adopting practices and behaviors that allow us to meet our present needs without compromising the resources and well-being of future generations.

What is the sustainability strategy in an oil company?

A sustainability strategy is a comprehensive approach that enables the oil company to align its operations with environmental, social and governance principles. These strategies not only focus on minimizing environmental impact, but also address issues such as labor rights, community engagement and corporate transparency.

In the case of oil companies, this involves integrating clean technologies, optimizing resources, reducing emissions and ensuring that their activities comply with international sustainable development standards. Through these actions, they not only mitigate risks, but also generate long-term value for their shareholders and the communities in which they operate.

The importance of sustainable development in the oil sector

Sustainable developments in the oil sector involve finding a balance between the extraction of natural resources and environmental protection. The oil company must incorporate practices that favor the energy transition, such as the use of clean technologies and resource efficiency. According to an IEA report, investments in renewable energies increased by 7% in 2023, while investments in oil and gas only grew by 3%, showing a growing trend towards sustainability in the energy sector.

By adopting practices aligned with sustainable development, companies can reduce their carbon footprint, improve energy efficiency and ensure the restoration of affected ecosystems. For example, reforestation projects, circular economy initiatives and the use of renewable energies are some of the most common strategies in this area.

ESG criteria: Basis for sustainability strategies

The criteria ESG (Environmental, Social, and Governance) are a set of factors used to evaluate the sustainability and social responsibility of a company. These criteria are the main framework on which the sustainability strategy is developed. These criteria help organizations to identify risks and opportunities, prioritizing key areas that need immediate attention, the most important of which are specified below.

Environmental

Companies in the oil sector must measure and manage their impact on the environment. This includes reducing greenhouse gas emissions, adopting cleaner technologies and improving waste management.

According to the International Energy Agency (IEA), 50% of CO₂ emissions come from oil and gas production, making it imperative that companies adopt technologies such as carbon capture. A BP report estimates that carbon capture and storage (CCS) could reduce global emissions by 14% by 2050.

Social

These criteria focus on the relationship of companies with their employees, local communities and other stakeholders. Investment in educational programs, protection of human rights and generation of local employment are concrete examples.

The S&P Global report highlights that more than 300 companies in the oil sector worldwide have invested in social projects, such as education and community development programs, as part of their sustainability strategy.

Governmental

Transparency, business ethics and risk management are fundamental to building trust with investors and regulators. Implementing clear policies and sound auditing systems strengthens corporate governance.

According to a Deloitte study, companies in the oil sector that adopt robust governance practices are 30% more likely to generate above-market returns. This includes transparency in decision-making and commitment to clear ethics and accountability policies.

Adopting these criteria is not only a response to investor and consumer expectations, but can also improve profitability by reducing risk and opening up opportunities in emerging markets.

The Corporate Finance Institute stresses that the concept of ESG goes beyond the environmental, taking a holistic view that encompasses social and governance aspects. In this video, courtesy of Corporate Finance Institute, explore the ESG framework and regulations, its evolution and the important role it has acquired in the investment community – don’t miss it!

Sustainability strategies applied in oil companies

These companies are adopting various strategies to align with ESG criteria. Some prominent examples include:

• Transition to renewables: 47% of major companies are investing in renewables, according to the Bloomberg NEF report. Shell and BP are leaders in this shift, with a strong focus on solar, wind and green hydrogen.
• Emissions reduction: Carbon capture (CCS) is one of the most promising technologies. ExxonMobil, for example, has invested more than $3.5 billion in CCS projects by 2030.
• Circular economy programs: In 2023, Repsol launched its initiative to recycle plastics and transform petrochemical products into useful new products, thereby reducing dependence on natural resources and minimizing environmental impact.
• Community engagement: Companies such as Total Energies are investing in infrastructure, health and education projects in the communities near their operations, with a focus on the social and economic well-being of the regions where they operate.
• Digitization and advanced technologies: Digitization is transforming the industry. Companies such as Chevron are using artificial intelligence (AI) to optimize oil and gas extraction, improving efficiency and reducing carbon footprint.

The role of corporate governance in sustainability

Corporate management plays an important role in ensuring that the sustainability strategy is effectively implemented and monitored. This includes:

• Define clear objectives: Establish goals aligned with the principles of sustainable development.
• Allocate resources: Allocate investments for sustainable projects and staff training.
• Monitoring and reporting: Regularly evaluate progress and communicate results to stakeholders.
• Ethical leadership: Promote a corporate culture committed to sustainability.

According to a PwC study, 64% of global oil companies already have an energy sustainability committee dedicated to overseeing the implementation of their strategies.

Benefits of implementing sustainability strategies in corporate management

Implementing sustainable strategies offers several tangible and measurable benefits:

• Improved reputation: According to an Edelman report, 71% of consumers prefer to buy products from companies that are committed to sustainability, which can result in a direct increase in revenue.
• Cost reduction: The adoption of clean technologies and process optimization can reduce operating costs for companies in the petroleum sector by up to 15%, as demonstrated by projects such as Chevron’s project at its Gorgon plant, which has reduced emissions by 40%.
• Regulatory compliance: Complying with global emissions and sustainability regulations avoids penalties. Companies that fail to comply with emissions regulations could face fines of up to US$1 billion in some markets.
• Attract and retain talent: LinkedIn’s report reveals that 45% of young professionals prefer to work for companies with a strong sustainability strategy, highlighting the importance of this factor in talent retention.

Success stories: Oil companies leading the way in sustainability

• Shell: With its “Powering Progress” strategy, it has committed more than $25 billion in renewables and carbon capture by 2025, with the goal of cutting its emissions in half by 2030.
• BP: BP has established a clear roadmap towards a net-zero emissions oil company by 2050, including significant investments in clean energy and sustainable infrastructure projects.
• Repsol: Repsol has implemented a series of initiatives in green hydrogen and solar energy, becoming a benchmark for sustainability in the sector.

Challenges in the implementation of sustainable strategies

Although the oil company is moving towards sustainability, it faces several challenges:

• High upfront costs: The transition to clean energy and the adoption of carbon capture technologies require significant investments, with a return on investment that can take 5 to 10 years.
• Resistance to change: The transition from a traditional business model to a sustainable one may face resistance from some managers or employees, which requires strong leadership and internal communication.
• Lack of infrastructure: In some countries and emerging markets, the lack of technological and financial infrastructure limits the ability of companies to adopt sustainable solutions quickly.

Conclusions

Sustainability is vital for the future of oil companies. With sustained investment in ESG criteria, clean energy and efficiency technologies, the sector can transform its challenges into opportunities, ensuring responsible management and generating a positive impact on the environment, society and its financial results. Companies in this sector are uniquely positioned to lead the change towards a greener and more sustainable future.

On this path to sustainability, every step counts. From the transition to clean energy to improving internal processes, sustainability strategies are not only a response to today’s challenges, but also an investment in the future.

Learn how sustainable strategies are transforming the future of oil companies!

References

1. ESGInnova.Com: (¿Que es la sostenibilidad?)
2. Inmaqtools.com: Post (estrategias de sostenibilidad en la industria petrolera)
3. bbva.com: (¿Qué son los criterios ESG (environmental, social and governance)?)