Oil and gas industry.
In the aftermath of the occurrence of the Gulf of Mexico disaster, Mohanty et al. (2013) contend that sustainability has emerged as a central issue inside the more extensive oil and gas industry. Players in this industry have developed an awareness of the importance of managing sustainability (Rana, Vinoba, and AlHumaidan, 2017). Players in this industry are increasingly encouraging their member companies to establish good relationships with stakeholders and communicate the impact of their businesses on the economic, environmental, governance and social fabric. According to Annis and Siddiqui (2015), increased oil and gas companies are conducting voluntary sustainability reports to demonstrate transparency and have ready disaster management programs. Yet, Rana, Vinoba, and AlHumaidan (2017) aver that the issue of sustainability governance lacks uniformity across the regions. Whereas some regions appear to have openly embraced voluntary sustainability reports, other regions lag behind in implementation. They only do so when there is a legal requirement for that to happen. To this extent, this report intends to conduct a sustainability analysis of the oil and gas industry. In view of this aim, this report has four primary objectives. Firstly, it will explore the governance of sustainability in the Australian oil and gas industry. Secondly, it will explore the governance of sustainability in the US and the UK oil and gas industry. Thirdly, it will identify sustainability issues in the oil and gas industry of the three regions. Fourthly, it will provide recommendations for CSR, sustainability governance and leadership in this industry.
Governance of sustainability of the Australian oil and gas industry
The Australian Petroleum Production and Exploration Association (APPEA) is a leading national body that handles affairs for the total Australian oil and gas survey and making business (APPEA, 2020). Under the association, there are 64 members of oil and gas explorers and producers that have an operational presence in Australia. The APPEA has the role of providing a vast variety of services to the upstream oil and gas industry. By working in conjunction with the Australian government, the Association is able to promote the development of Australia’s Island gas resources, thereby maximising return for the Australian industry and community (Oil and Gas Australia, 2020).
The APPEA appears to recognise the importance of a sustainable Australian oil and gas industry; it ultimately seems to be driven by the creation of profit (Ibis World, 2020). Based on a vision driven by enabling the Australian oil and gas industry to not only grow but achieve and internationally acclaimed and competitive position, one can argue that there is limited room left for sustainability-related initiatives. Likewise, evidence of the APPEA strategic goals appears to indicate that it’s driven by the need to protect the Island gas industry is access to resources both of shop and onshore (Nicholson, 2019). It’s also driven by the need to defend the industries reputation and improve the operating environment. Therefore, scrutinising the APPEA strategic goals, one can argue that the main oil and gas regulatory body in Australia prioritises profit over the environment and the people. This is reinforced by the perspective that it seeks to widen community and government understanding for the oil and gas industry’s actions. Therefore, there is limited accountability on the fragment of the industry players with regards to the role of the community and the environment at large.
Governance of sustainability in the US and UK oil and gas industries
Sustainability governance in the US
As an entity, the US government lacks any national energy policy (Garcia, Lessard, and Singh, 2014). This is because, in the US, private individuals usually keep all oil and gas resources. As such, the mineral interests such as oil and gas are possessed by individuals, corporate, and government units that happen to possess a surface of land with those mineral deposits. In view of these, Mohanty et al. (2013) contend that the private property rights suggest that the individual has express rights on the oil and gas found within their property. Nonetheless, whilst the guidelines of oil and gas boring is principally left for the states, Boyce and Nøstbakken (2011) contend that the overall functions are controlled by the Bureau of Ocean Energy Management. Under this control and regulation, the BOEM is largely responsible for outlining and underlining the issues that need to be observed and to what extent, state regulations pre-empt local controls.
However, in the wake of the Gulf of Mexico oil spill disaster, there have been greater enforcement and scrutiny of the sustainability governance practices of the US oil and gas companies. For instance, Mohanty et al. (2013) aver that there has been a particular focus on the environmental issues related to routine flaring, and spillages and Arctic refuge drilling controversies. As a consequence, more US oil and gas firms are engaging in fast sustainability self-governance. The scandal of the Gulf of Mexico BP oil spill of 2010, has placed companies in the US oil and gas industry at heightened awareness because of the impact of sustainability-related controversies and brand reputation (Mohanty et al., 2013). Therefore, in view of the heightened awareness, an increased number of US oil and gas companies are deciding to self-regulate and come up with unique sustainability practices that can endear them to the final consumer. For instance, Exxon Mobil produces an annual sustainability report that showcases its efforts, goals, and plans for the society, environment, and shareholders.
Sustainability governance in the UK
In the UK, the Health and Safety Executive (HSE) is the primary watchdog of the UK oil and gas industry (HSE, 2020). The HSE is organised into a number of directorates that are in charge of handling a variety of issues with regards to the oil and gas industry of the UK. For instance, Yusuf et al. (2014) suggests that the Hazardous Installation Directorate (HID) is in charge of major hazards arising from the industry. Consequently, a dedicated offshore category inside the HID is also tasked with the responsibility of enforcing regulations within the offshore oil and gas industry of the UK. The HSC continues to play a principal function in fostering and promoting sustainability within the UK industry. It requires all organisations in the UK oil and gas businesses to prepare annual sustainability reports (Yusuf et al., 2014). These reports serve an imperative responsibility in assessing the performance of UK players in the Island gas industry with regards to 24 primary indicators.
Moreover, conducting scrutiny of major players in the UK oil and gas industry, it is indicative that more and more companies are engaged in the voluntary sustainability report preparation (Cruz and Krausmann, 2013). Therefore, one can argue that the UK industry’s sustainability governance is dependent on the regulator and also at the behest of the individual oil and gas company itself. For example, BP and other large UK oil and gas companies produce an integrated approach to sustainability. As such, BP communicates to stakeholders its belief in longstanding commercial accomplishment by focusing on the first triple bottom line test (BP PLC, 2020). Specifically, BP is largely concerned with its options and the influence on the environment, economy, and society in which it operates. It can be argued that through its voluntary sustainability practices, BP epitomises the sustainability thinking and framework that is integrated into the larger UK oil and gas industry.
Sustainability challenges experienced in Australia, US and UK oil and gas industry
Founded on perspectives captured across the oil and gas industries of Australia, the US and the UK, it appears that there are a wide variety of challenges with regard to sustainability governance within individual and overall oil and gas industries. Likewise, McKinsey and Company (2020) aver that throughout the past several eons, the global oil and gas industry has faced a variety of complex challenges.
Firstly, the price fluctuation caused by oil and gas producing nations and their high susceptibility to activities are closely linked to the industry (Anis and Siddiqui, 2015). For instance, a change in demand within other industries tends to have a direct or indirect influence in the oil and gas industry of the US. This susceptibility of the US and oil and gas industry can be attributed to its sustainability governance model that allows private individuals to trade in oil and gas as opposed to nationalising such resources (Mohanty et al., 2013). As a consequence, the US oil and gas industry is expected to be more vulnerable to external shock compared to that of the UK and Australia that are government-owned and regulated. Similarly, and in support of the view of (Mohanty et al., 2013), McKinsey and Company (2020) contend that the widely fluctuating prices within the industry pose a significant sustainability challenges for small participants in the oil and gas industry. A case in point is the recent negative oil and gas prices in the US stock market, resulting from the negative impact of the COVID-19 pandemic on the oil and gas industry (McKinsey and Company, 2020). As a result, this event also resulted in the falling prices for oil and gas products around the world as demand waned due to the government-imposed lockdowns across the globe.
Secondly, increasing pressure on managers by shareholders for value creation poses another significant sustainability challenge for the oil and gas industry (Spence, 2011). This is because managers of oil and gas firms face a tough balancing act of meeting stakeholder expectations whilst also observing that the other perspectives of the triple bottom line are absorbed (Garcia, Lessard and Singh, 2014). This is particularly significant in situations of poor economic performance whereby there is amplified stress on the oil and gas firm’s bottom line. However, scrutinising the sustainability challenge of shareholder pressure, one can argue that it is likely to be more significant in the US oil and gas industry than the Australian and the UK industries (Guthrie and Sokolowsky, 2010). This is because the existence of government influence in the UK and Australian oil and gas industries suggests that it’s likely to have a calming effect on the market as opposed to the US oil and gas industry that is largely controlled by private individuals.
Thirdly, climate change and growing global concerns around its impact on the current and future generations’ survival has put huge pressure on the global oil and gas industry to craft sustainability programs that appear to indicate their commitment towards reversing climate change (Mohanty et al., 2013). All across the world, there is a growing danger of the devastating consequences for change in climate as per (Pinkse and Kolk, 2010). For instance, there is the danger of the rising sea level that is putting more villages and towns at greater risk of flooding and storms. As a consequence, Cruz and Krausmann (2013) contend that the oil and gas industry finds itself in the middle of this conundrum because of the well-documented impact of oil in growing greenhouse gas emissions. Yet, the UK and Australia’s decision to remain as part of the Paris climate agreement accord signatories shows a greater commitment for their national industries towards reducing carbon emissions (Rana, Vinoba and AlHumaidan, 2017). Conversely, the US government’s decision to pull out of the Paris climate has reinforced the view that the US seeks to retain its freedom and autonomy with regard to the level of carbon emissions it contributes to the environment.
Recommendations for CSR, sustainability governance and leadership in the oil and gas industry
In order for players in the oil and gas industry to improve on their CSR practices, they should develop an awareness of all the customers they serve. The importance of this action is to determine where to channel and direct CSR related efforts. For instance, an oil and gas company should consider setting up a school if it operates in an environment whereby there is a lack of adequate schooling facilities. Alternatively, if it operates in an environment where there is an inadequate supply of clean drinking water, the company should earmark its CSR-related projects to provide effective solutions for the supply of clean drinking water. The businesses within the oil and gas industry should reinforce and showcase their CSR stances within the communication of the mission and vision statement. These actions are informed by the need to emphasise the company’s commitment towards corporate social responsibility practices and remind stakeholders of the company that the company has a duty to a large number of people.
The oil and gas industry should introduce voluntary sustainability programs that enable the companies to address environmental concerns. In seeking to implement such voluntary programs, the oil and gas industry should seek to go beyond government regulations and engage in a self-governance approach that is based on a proactive lead towards repairing the harm caused to the setting. For instance, the oil and gas industry should emulate voluntary sustainability programs such as the EPA’s STAR program and OSHA’s voluntary protection programs. Therefore, the oil and gas industry players should take a leadership role in not only acting quickly to make environmental strides, but also communicate to the target audiences that the company is committed towards social, environmental and shareholder value creation. Some of the areas that the sustainability efforts of the oil and gas companies should be directed towards include community development, sinking of decrepit rigs, and creating profit for the shareholders.
The industry should take a leadership position with regard to climate change. This involves all the companies within the industry, committing to setting the right example. As such, it is expected that the companies within the oil and gas industry would demonstrate commitment to reducing carbon emissions. In addition, there would be an expectation that the companies in the industry research and develop alternative energy sources. Moreover, in seeking to take up a leadership position, the players inside the oil and gas industry should demonstrate an ability to seek and take responsibility for the actions. For instance, as was demonstrated in the case of the BP oil spill in 2010, the oil and gas industry players should lessen the apportioning of blame and instead commit to seeking to take responsibility for the actions.
Conclusion
This essay focuses on the critical discussion of the oil and gas industry. Based on the choice of Australia, the US and UK, this essay established that whilst a large number of sustainability governance could be replicated across the regions, there were some stark differences. For instance, the private ownership and lack of energy framework in the US government, vastly exposed the US oil and gas industry to macroeconomic shocks in relation to the oil and gas industries of the UK and Australia. Moreover, this essay also established that shareholder pressure for profits, fluctuating prices for oil and climate change concerns, and pressures were some of the significant issues faced in the oil and gas industry. Furthermore, this essay suggests that the industry not only needed to lead by example in climate change initiatives but also needed to practice voluntary sustainability practices and targeted CSR initiatives around the most affected and vulnerable communities and ecosystems.