Environmental, Social, and Corporate Governance (ESG) criteria are intended to capture company actions considered material to present and future enterprise value but not treated as part of traditional accounting or financial analysis. First described in the seminal 2005 report, Who Cares Wins, attention to ESG principles was deemed sound business practice while concurrently offering improved societal benefit. Numerous studies since support the notion that the ways companies address ESG factors serve as additional indicators of overall company performance and management of risk, contributing to a firm’s success and long-term viability.
Despite the growing recognition and utilization of ESG metrics to establish company value and drive investment decisions, significant discrepancies and disagreements persist in consistently defining, capturing, and assessing relevant criteria. Much of the current ambiguity stems from the befuddling nature of corporate sustainability reporting, including 1) inconsistent inclusion and definition of ESG metrics in Corporate Sustainability Reports (CSRs), 2) unverified data quality, 3) voluntary nature of disclosure, and 4) inherent biases linked to a firm’s location, size, scale, and scope. And while there has been a substantial increase in the extent of sustainability reporting over recent years, a simultaneous rise in decision-usefulness of the included information is less apparent.
To better understand and address the quality, consistency, and completeness of ESG reporting within the Oil and Gas industry, B3 Insight evaluated water-related metrics (focusing on the E of ESG) for companies with significant Permian Basin water management operations. Of the 140 companies reviewed, representing approximately 95% of August 2019 Permian Basin water injection, under one-fifth provided organization-aggregated water management performance metrics in a manner aligned with any one of the leading sustainability standards frameworks. Additionally, despite the local nature of water management issues, few provided geographic specificity to their disclosures. As a result, only limited peer-to-peer assessment and industry benchmarking could be performed based on this data.