The OGA ESG Taskforce recommends enhanced disclosure and reporting of climate-related information

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The Oil and Gas Authority’s Environmental, Social and Governance Taskforce (“ESG Taskforce”) has outlined a number of expectations which operators and licensees should meet in relation to disclosure and investor reporting. The ESG Taskforce has concluded that operators and licensees should spend the next year debating and discussing best practice of how to report against the identified metrics and should be ready to report in Q1 2022 alongside the publication of 2021 full year financial reports.

The ESG Taskforce recommends that licensees and operators align to a minimum standard of reporting using key agreed upon metrics set out in the ESG Taskforce report. The report outlines seven Tier 1 quantitative metrics which should be the focus for 2021. These include: key health and safety statistics and metrics; fugitive methane emissions; gas handling – venting & flaring & solutions; and scope 1 and 2 emissions (CO2e/boe). There are five additional Tier 2 and Tier 3 metrics set out in the report. These metrics will be of increased importance in the medium to long term meaning that the reporting requirements on operators and licensees will extend over time. The Tier 2 and 3 metrics include an increased requirement to align reporting with the Task Force on Climate-related Financial Disclosures (“TCFD”).

The following overarching expectations were also agreed upon by the ESG Taskforce:

  • climate related data should be disclosed in financial reports and/or websites;
  • the industry should work towards “being leaders not laggards – reduce risk/go first”;
  • the industry should be mindful of the gap between what is currently being reported and what investors expect;
  • disclosure should be quantitative and qualitative and should improve over time;
  • senior leadership teams should adopt these metrics, drive their businesses to gather accurate data and set the tone at company strategy level; and
  • companies may choose to set science-based targets.

The ESG Taskforce is a cross-industry discussion group, organised by the Oil and gas Authority (“OGA”), which was asked to identify a small set of ESG metrics which are important to investors and can be easily reported on by companies. The ESG Taskforce focused on the ‘E’ of ESG: the environmental aspects of reporting. The social and governance aspects of ESG are expected to be discussed as part of the OGA’s Governance Guidance which is currently expected in the summer of 2021.

The OGA has engaged with investor groups in recent years and the ESG Taskforce report mentions the growing importance of ESG to the investor community as it faces pressure to support low-carbon businesses. Investors are increasingly interested in the non-financial performance of companies and the demand for socially responsible investing is expected to continue. The OGA’s announcement highlights concerns raised by investors that there is a lack of standardised ESG metrics which allow for comparison between companies. The information set out in the expectations would provide greater transparency between companies in the oil and gas industry and those looking for socially responsible investments.

The ESG Taskforce report comes after the revised OGA Strategy came into force in February 2021, please see our previous Law-Now article on the revised OGA Strategy here. The OGA Strategy placed a new focus on climate change, the industry’s “social licence to operate” and the role the industry can play in achieving net zero. The OGA Strategy contains the high-level principle that operators should develop and maintain good ESG practices. The OGA has stated that by fulfilling this expectation, companies will also meet investor requirements.

Many operators and licensees already meet these expectations but the OGA has stated that it intends to support widespread adoption by working with trade associations and groups including OGUK. The OGA also intends to arrange regular meetings and teaching sessions to help the industry adapt.

In addition to the ESG Taskforce expectations and the OGA Strategy, the UK Government announced in November 2020 that it will make ESG disclosures (aligned to the TCFD framework) fully mandatory across the economy by 2025, with many requirements coming into force in 2023. The OGA has stated that meeting the expectations outlined by the ESG Taskforce now will help the industry to prepare for the mandatory requirements.

The OGA’s announcement is available here, the ESG Taskforce report is available here, and the OGA Strategy is available here.