“It’s not going to happen overnight”: GCs need to manage ESG expectations

Covid-19 and climate change has forced ESG centre stage and there’s no sign of it leaving the spotlight any time soon.

But as explored at The Lawyer’s latest roundtable, chaired by Consilio’s Trevor Horwitz, how much of the ESG hype has translated into meaningful change in the energy sector? A group of senior in-house legal counsel explained why oil and gas is staying put for now and how lawyers can help manage expectations.

Patience is required

One of the key drivers behind the ESG movement is shifting shareholder perception. As investors look to re-examine their portfolios, companies face increasing pressure, with management boards held under huge scrutiny. Make the wrong move or fail to adapt, and risk losing investors.

“I’ve never seen so many people rush after a three-letter acronym,” said one general counsel for an oil and gas outfit company.

But those expecting an immediate industry overhaul will be disappointed. “I see a lot of principles, a lot of desire and a lot of talking. But if we’re honest with ourselves, it isn’t going to happen overnight,” said one lawyer.

Whether you’re fine-tuning machinery that captures and stores carbon emissions from industrial processes, designing the infrastructure supporting floating offshore windfarms or applying fossil-fuel tech to renewable energies — innovation in the renewable energy sector takes a long time.

“We are not like Apple which can churn out a new product every six months,” a general counsel for a marine energy company puts it. “The desire and intention is there, but patience is required.”

Though Covid-19 has driven a huge shift in attitudes towards sustainability, a meaningful transition from a hydrocarbon-based system of energy production and consumption to a sustainable alternative could take decades.

Until then, fossil fuels remain major components of the global energy system. Look no further than concerns of a gas shortage crunch in Europe, while market prices for fossil fuels soar.

Gas especially will be vital as the world migrates to a cleaner energy system. It offers a relatively cheap alternative that creates fewer carbon emissions compared to oil and coal that can provide a constant energy source.

So long as there’s a demand for resources, players in the oil and gas industry will rise to meet it. If they don’t, their rivals will. “It’s easy to say this should happen, that should happen. Yes, that’s true, but for now the world is still going in that direction – burning oil and gas, and using coal,” said a general counsel of a petrol group.

Managing expectations

However, the energy giants can suffer from a “lot of admin, a lot of red tape and sluggishness”, commented a former in-house energy lawyer. Dragging progress among upstream oil and gas titans is a risk averse attitude to conducting business – stifling new deals being struck in the renewable space. While the world’s largest oil and gas companies take steps that many regard as being too small or too slow, alternative providers are swallowing up lucrative and interesting deals and opportunities. Failure to keep up with new entrants could leave traditional fossil fuel behemoths with a recruitment pipeline issue, as a new generation of environmentally conscious talent opts against joining those still dealing with oil and coal.

So, how can you readjust the expectations of those expecting an overnight revolution?

“I’ve been really interested in how heads of legal, GCs and senior lawyers can play a real role,” said one legal compliance head. “I’m sure we’ve all got experience of very ambitious and excited marketing departments. The challenge is: how do we ensure as a business, we do recognise it’s not going to happen overnight, even though everyone wants it?”

They suggested opening-up an honest dialogue. “From my perspective, personally, I’m really trying to educate the marketing teams by getting involved and seeing where they want to push this in the short to medium term.”

Considering the new age of accountability bred by LinkedIn, Twitter and other social media platforms, such concerns have never been more pressing. “The world we live in, they want everything now — it’s the result of instant gratification,” says one, “They want a result now or yesterday”.

There are real risks which energy outfits, and their lawyers, must stay alive to as climate change continues. Surrender to ESG pressure and acting too quickly, for example, could risk making “really broad promises and statements that don’t hold any water”. However, take too long in implementing change and companies could become the target of a fast spreading cancel campaign or worse – climate change litigation. As one lawyer highlighted, look no further than the legal action launched by citizens against Poland and the Netherlands for their inaction to tackle the climate crisis.

You can stop this snowball effect by being realistic and changing perceptions, another added. “Maybe 2050 looks like a long time ahead – but in oil and gas it’s not.”