Oil firms meeting climate, diversity goals gain more investment

Oil companies showing progress in meeting environmental and workplace diversity goals are more likely to attract larger investments and boost their stock prices, an energy research firm found.

More than 40 U.S. and Canadian public oil and gas producers — including supermajors Chevron, BP and Exxon Mobil — were included in the analysis from Norwegian firm Rystad Energy. The study looked at companies’ stock prices over time along with their progress on what the industry calls “environmental, social and governance” issues, or “ESG.”

Since 2016, shares of companies that met higher Rystad

ESG benchmarks performed better than those that scored lower. Rystad said, however, that in the past 18 months, companies that ranked lowest on Rystad’s ESG scale outperformed the market.

“It is clear that ESG performance impacts investor appetite, even though ESG scores have not been the lead indicator of stock growth during the latest market recovery in 2021,” said Alisa Lukash, Rystad Energy’s vice president of shale research. “ESG performance affects the ownership profile of the energy sector with sustainability-focused investors diversifying into the other sectors.”

Oil companies with better environmental, social and governance records tend to be larger — such as Chevron and BP, which have spent years crafting their responses to climate change while strengthening their finances. Rystad categorizes the companies likely to have a

lower score as the “more volatile smaller operators” that have little in the way of a climate plan.

Compiling the grades

In its environmental analysis, Rystad looked at things like emissions reductions and development of alternative energy for its environmental benchmark. Its social rating included a tally of worker injuries, as well as race and gender diversity among employees. The governance score was based on diversity of the board of directors and whether board members

carry climate-related responsibilities.

Rystad said the companies evaluated account for 60 percent of U.S. and Canada production from shale and oil sands.

Chevron received the highest overall mark, followed by Denver-based SM Energy. Another Denver company, Ovintiv, and Houston’s ConocoPhillips tied for third.

In the environmental category, Denver’s Antero Resources tops the list, followed by unnamed private companies.

For the social benchmark, BP tops the list. Following close

behind were an unnamed private company, Houston’s Marathon Oil and Occidental Petroleum.

Chevron topped the governance category, with SM Energy at No. 2.

Shareholder concern

Investors, who are expected to put $300 billion into oil and gas companies this year, have been pushing the industry to adopt more meaningful climate plans while cautioning against “greenwashing” — misleading investors about how environmentally friendly certain practices

are.

The pressure to meet environmental goals has eased slightly in recent months as Russia’s invasion of Ukraine caused U.S. officials to call on the industry to boost production in an effort to compensate for Russian oil and gas lost to sanctions. But demands for capital discipline from investors, challenges in the global supply chain and a shortage of workers are leading drillers to stick to planned production hikes that are more modest.

Eli Hartman/Associated Press Rystad Energy says the companies evaluated account for 60 percent of U.S. and Canada production from shale and oil sands, with Chevron receiving the highest overall mark.