We've long been aware of the climate change impacts from the oil and gas, coal, metals and mining industries.
But this is only one slice of the sustainability pie when it comes to this so-called extractives or non-renewable resources sector. What about the impact of extractives on other social issues, or the opportunity for these industries to innovate and improve their sustainability performance?
The Sustainability Accounting Standards Board (SASB) in August convened a range of business, investment and accounting stakeholders to offer their advice on sustainability accounting standards for the non-renewable resources sector. SASB working groups play a key role in SASB’s standards setting process, providing industry-expert feedback on material environmental social and governance (ESG) issues and associated accounting metrics.
These overarching ESG trends appeared in the extractives sector:
1. More scrutiny
The sector’s high greenhouse gas emissions and contribution to climate change are leading to increased regulatory and investor scrutiny. The oil and gas industry generates 30 percent of total methane emissions in the U.S. Methane is up to 21 times more potent than carbon dioxide as a greenhouse gas over a 20-year time span. Bills such as the Fracturing Responsibility and Awareness of Chemicals (FRAC) Act have been introduced in Congress to repeal the exemption for fracking operations under the Safe Drinking Water Act.
2. Safety records
Extraction activities are intrinsically riskier than other sectors; necessitating safety culture and emergency preparedness. According to the Bureau of Labor Statistics, the fatality rate for the oil and gas services industry was 33 per 100,000 workers in 2011, more than nine times the average rate for all industries.
3. A trend toward innovation
Companies in the sector are engaging in product innovation, including green building products, lighter and recycled materials, cleaner fuel blends and advanced biofuels. For example, Ceratech is using fly ash waste from coal burning power plants as the main input -- 95 percent -- to make cement. The U.S. produces an estimated 80 million tons of fly ash per year.
4. More transparency than expected
In addition to identifying the material ESG issues for each of the eight industries in this sector, SASB looked at the current state of disclosure of sustainability issues in the Form 10-K. Perhaps surprisingly, the non-renewables sector has a higher average of industry-specific, decision-useful metrics than other sectors we’ve examined thus far. One possible reason is that environmental impacts, for example, are better understood and quantified in extractives industries than they have been in other industries we have covered to date, such as those in the financials or technology and communications sectors.
Our researchers plan to refine the standards under development for non-renewable resource-related industries based industry working group feedback. SASB standards for these industries will be exposed for a 90-day public comment period beginning Jan. 14.
Work is advancing in other sectors. We're taking public comments for industries in the technology and communication sector, began registration for a transportation industry working group and completed standards for industries in health care. By 2015, we’ll have established standards for the disclosure of material ESG issues for more than 80 industries.
Oil pump image by Thaiview via Shutterstock.