Large oil executives have a personal reason to focus more on smaller fossil fuels

A staff member walks the company’s new Quest Carbon Recording and Storage (CCS) facility in Fort Saskatchewan, Alberta, Canada, October 7, 2021.

Todd Corol | Reuters

As energy demand recedes and commodity market experts talk about a $ 100 oil recovery, there are new reasons to keep producers out of the energy sector: a decade after the Great Budget Recession in the United States to ESG pressure and ways to pay shareholders for energy .

A.D. In 2018, Royal Dutch became the first oil company to link ESG with executive payments to reduce carbon emissions. BAP followed suit with ESG measures in its annual bonus and LTP. European leaders are the first, and Chevron and Marathon Oil have added greenhouse gas emissions targets to executive compensation plans among US-based oil companies.

Oil and gas companies are joining dozens of public corporations – including Apple, Chlorox, Pepsico and Starbucks – to link ESG to executive payments. Last week, the Industrial Caterpillar created a position of Chief Sustainability and Strategic Officer and will now lease some of its executive compensation to ESG.

According to a report by Willis Towers Watson, 51 percent of S&P 500 companies have used ESG metrics in their executive compensation plans since last year. Half of the companies include ESG in their annual bonus or incentive plans, only 4% use in long-term incentive plans (LTIP). A similar report with PricewaterhouseCoopers (PwC) found that 45% of FTSE 100 companies have an annual bonus, LTIP or both ESG targets.

“We will continue to see the percentage of companies [linking ESG to pay] Ken Cook, executive director of talent and awards at Willis Towers Watson. And although more than 95% of ESG metrics are currently available in annual bonuses, he said, “there is a greater transition to long-term incentives.” They said.

According to a survey conducted by the organization last year, five members (78%) of board members and senior executives plan to change how they use ESG over the next three years. This reflects the current surplus debate in the organization world, with local standards being a top priority.

Loading fossil fuel industry

A.D. By 2020, oil consumption accounted for about a third of US energy, but accounted for 45% of total CO2 emissions, according to the US Energy Information Administration. Natural gas also accounts for about a third of the country’s energy and produces 36% of CO2 emissions. Oil and gas companies save about 10% of their energy consumption and about 19% of their coal.

Investors are focusing on ESG, and the fossil fuel industry is pushing to reduce global carbon footprint and related risks to operations and downstream lines. “The acceleration of the investment community around ESG is pushing the discussion towards climate change [change]”We can’t underestimate the impact that investors will have over the next two years,” said Philip O’Connor, a London-based partner at PCC and chief executive officer. “

The input of the investor played an important role in the decision of Shell North, and subsequently to the competitors. And while the executive compensation at Exxon Mobile’s shareholders’ meeting last spring was not high, the industry collapsed when the Climate-Activist Fence Fund Motor No. 1 won three seats on its board of directors. The coup, as described in general, could ultimately signal Exxon’s reliance on carbon-based businesses and lead to more investments in solar, wind and other renewable energy sources — and in the process would result in ESG-linked payment packages.

“We look forward to working with all our directors to increase the value of the long-term shareholder and build on the future of low-carbon.” Proxy voice.

Meanwhile, financial regulators are considering climate change for investors. The Securities and Exchange Commission’s ESG Declaration states that the new chairman, Gary Jensler, will focus on climate change and other ESG factors as a matter of labor.

There is nothing new about encouraging corporate leaders to hit pre-determined goals in order to increase certain revenues, profits, and shareholder returns. Over the years, oil and gas companies have set up incentives to improve workplace safety – from drilling rigs to drilling rigs.

A.D. Following Innoro’s accounting and fraud scandal in 2001, the completion of new administrative missions (the Sarbans-Oxley Act) was the basis for the award. Then came the extra charge for quality, health and wellness, recycling, energy conservation and community service – including corporate social responsibility. Sustainability is all-encompassing to establish enforcement standards in the workplace and ethical business practices in environmental protection, diversity, equity and inclusion (DI): all are now under the shadow of ESG.

ESG is tough, and current carbon targets have critics

Although the trend is expected to continue, experts warn that the process could be difficult, and that oil and gas companies have already set goals to cope with climate change.

Oil and gas companies, including emissions reduction in executive pay packages, may be forced to speak out about their good corporate citizenship. But the method can be challenging. “He is not, but how,” said Christian Malek, an industry analyst at Jerry Morgan. For example, a company may report how much it has reduced global carbon emissions in one year. “But that is very limited,” because they do not state their emissions, which can vary widely from place to place. As for the carbon strength, it is in it [overall] Portfolio. ”

Or a company can slip into a green sink through carbon offsets. “I have high emissions, so I will be [plant] Lots of jungle, and I isolate myself that way, ”Malik – The company is still producing the same amount of emissions. They are expressing it optimally better than reality. Publicity must work hand in hand with compensation, ”he said.

Optics, a well-paid oil and gas company to do well, could help the industry’s image of a growing population affected by climate change, the worst, and most devastating, related UN report and a series of deadly floods, hurricanes, heat waves. And wildfires. But experts say the sector’s focus on climate and energy is often inadequate, reducing the strength of fossil fuels, producing fossil fuels and emissions, not only with low 1 and 2 emissions, but also with 3 emissions, a major contributor to climate change.

According to O’Connor, companies need to be careful about how they align their ESG metrics with incentives. “ESG is a vast and complex set of standards and expectations,” she said. This is one of the reasons why we are seeing so many companies using multiple metrics rather than one scale to get a better balance of opinions and attitudes on the ESG platform. There is no one-size-fits-all policy in this, and there is a risk of trying to move quickly and return to the same level.

The epidemic has set an unprecedented level of compensation incentives by 2020, and as the global economy shrunk last year, the LLL Board decided to leave bonuses to CEO Ben van Berden, CFO Jessica Uhl and other top executives, and there was no direct link to their LTIPs energy transfer goals. To deliver.

The energy sector has slowed down this year due to rising demand for oil and gas during low supply. That could encourage oil and gas companies to produce more, but at the same time increase compensation for energy transfer. At Shell, the 2021 annual bonus will be the same as the 2020 target for the CEO and CFO at 120%, respectively, at $ 1,842,530 and $ 1,200,900, respectively. In this case, although the improvement in energy transfer has increased from the current total to 10% to 15%. In addition, energy transfer is part of the LTIP for the next three years, based on the Shell 2020 Annual Report.

Fuel prices have returned sharply amid limited supply and demand growth, but many oil and gas companies are paying close and long-term executions to the Royal Dutch Transition Goals.

According to a 2019 McKinsey study, accepting ESG is not only a good feeling, but there is growing evidence that it is worthwhile when done correctly. And that may be enough to persuade many oil and gas companies to link up with compensation, because ECG is one of the few industries that exists. “Sometimes we think we are doing well for ESG, and he is doing well. But I still believe there must be a business reason for everything. And ESG only wins when you have a business reason.

The harmful effects of carbon emissions on climate change will continue to push oil and gas companies to accept the International Energy Agency’s target of zero zero by 2050. It can be a key driver in influencing change.

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