Palm oil, timber, cotton, biofuels, fish, gold and silver, and even coal all have certification systems that differentiate responsible producers from unsustainable operators. Yet impossible as it may sound, big oil has escaped the certification revolution. Oil and natural gas – arguably the world’s most politically and economically important commodity – have no market-facing certification system to allow motorists, fleet-owners, manufacturers, supply-chain managers, and consumers to choose a “certified” option.
Of course, that doesn’t mean the oil and gas industry is free from outside scrutiny or lacks environment, health and safety (EHS) or environment, social and governance (ESG) standards. A number of companies participate in industry sustainability indices and corporate CSR reporting initiatives, such as the Global Compact, the Global Reporting Initiative, and the Dow Jones Sustainability Index. Some follow guidelines developed by the Extractive Industries Transparency Initiative (EITI) and the Voluntary Principles on Security and Human Rights, which have made considerable strides in raising standards on corruption and human rights. Internal corporate standards that conform to the Equator Principles, loan conditions put in place by project financiers, or comply with ISO, a family of generic systems-based standards, are also increasingly common.
Collectively these systems cover many of the important oil and gas sustainability issues, but they don’t address all, and are not a systemic framework to manage or report non-financial risk. Many are designed around environmental or social management systems that are often criticised for failing to measure “outcome” performance – ie is the local ecosystem or community better or worse off as a result of development? The effectiveness of many voluntary systems is often irritating but not enough to change behaviour. Also, few, if any, are familiar to consumers or easy to incorporate into retailers’ sourcing policies.
What’s needed is a certification system designed specifically for oil and gas that is comprehensive, credible (rigorous standards supported by stakeholders), provides assurance (has a professional and independent ecosystem of certifying bodies and auditors), provides retailers and consumers with a choice to support responsible production, and creates business value through building a recognisable brand that can help distinguish responsible companies in the market.
A senior manager at one oil super major responded to an NGO’s question at a public meeting by saying: “We can see that you care that we have external assessment of our practices, but why should we care that you care?”
Making the case to oil and gas companies to adopt third party verification of their EHS performance is not easy. Change isn’t a priority. Yet, now is exactly the right time for certification.
Awareness of environmental, human rights, and good governance issues is at an all time high. At oil and gas project sites, communities are more vocal and better able to delay and stop projects, costing companies many millions. People care. As do investors who are facing pressure to use their influence to improve EHS performance. Supply chain executives have also come on board. For example, the non-profit Business for Social Responsibility’s Future for Fuels initiative has powerful manufacturing and retail companies, including Wal-Mart, looking at ways to source responsible liquid fuels.
Studies show that certification schemes improve reputation, lead to significant operating efficiencies, win long-term clients, and improve market position. And customers continue to say they’d pay more for green, clean and responsible products if given the choice.
Equitable Origin (EO), a social enterprise, has created a fully comprehensive certification – the EO100TM Standard – and certificate trading system to recognise and incentivise responsible oil production. EO believes incentivising best practices at oil and gas operations is crucial and have included a “book-and-claim” certificate trading platform that returns revenue generated from end-users of oil and gas to a certified project site to invest back into community development and environmental protection. A performance score at each project ignites the competitive nature of the private sector and a race to the top.
EO is a stakeholder-based system that has the support of indigenous people and communities in oil-producing regions and a governance system that balances the voices from industry, experts and scientists, affected communities, and international NGOs. Later this year, an oil and gas operation in the Amazon Basin will become the first site to be certified to the EO100 Standard.