Social aspect of ESG within energy industry

02 November 2023

The ESG lens is firmly focused on the energy and natural resources industry, and we have increasingly witnessed how ESG principles are driving the business agenda within the sector. But of the three defined pillars of ESG, the social aspect of ESG can be the most difficult and nuanced to balance with the other two pillars of ESG.

Our ESG specialists highlight key considerations for business leaders in energy and natural resources.

Defining the social aspect of ESG

The social aspect of ESG is broad ranging, covering everything to do with people within your business and externally, including your supply chain. This can include:

diversity and inclusion;
retention;
training and employee development;
health and safety;
workplace conditions and equal pay; and
community engagement.

What standards are out there?

We are seeing emerging regulations impacting the energy and natural resources industry - IFRS S1 and S2 standards, which were released by the IFRS earlier this year. We don’t yet know how the UK will adopt these IFRS standards, but the government is aiming to make an endorsement decision by July 2024. We are seeing these IFRS standards adopted by other countries, such as Australia, as well as alignment to European standards (CSRD and ESRS). Within IFRS, the Sustainable Accounting Standards Board (SASB) standard taxonomy has been created to help determine what is material for each industry.

It’s not enough for businesses just to wait for and adhere to these standards. There is a big ethical and reputational risk of not doing what’s right on a social level for your internal and external stakeholders, and this includes your supply chain.

Key areas to address

Your supply chain
Diversity and inclusion
Retention
Safety & workplace conditions
Community engagement

Your supply chain

Diversity and inclusion

Retention

Safety & workplace conditions

Community engagement

Difficulty of evaluating

The social aspect of ESG can be more difficult to measure but key principles include transparency of reporting and the authenticity of your business values. For example, it is important to hold yourself to account in terms of your targets, where you do fall short.

Graham Ricketts, RSM UK’s co-head of mining and metals comments: ‘Setting and measuring progress towards ESG targets using reported KPIs is important in allowing investors to understand and compare companies. However, in the absence of formal guidelines, KPI reporting may be vulnerable to inconsistency and even manipulation to tell the story a company wants to tell rather than the actual story.’

Paul Watts, RSM UK’s co-head of energy comments: ‘For our UK head quartered clients, we are seeing our clients typically applying UK corporate guidelines where guidelines don’t exist in locations where they operate. But it is complex to juggle UK standards with requirements such as local permits and licences.’

For energy and natural resource organisations, the external lens of ESG has been critically focussed upon either carbon emissions, human rights or indeed both. Whilst it is unlikely that any such focus will lessen anytime soon (though geographic locations can have a significant influence over this) in reality, we are witnessing a broader approach to viewing their responsibilities on ESG. It is not that carbon emissions or human rights are any less important - rather by taking a wider stance as to ESG in areas, such as diversity and inclusion and wider social impacts within communities, energy and natural resource organisations may be better placed to mitigate such risks and to drive resilience. As we can see in this article, legislation is heading inexorably to greater transparency over an organisation’s full suite of ESG activities and isn’t solely focussed on their own operations. Supply chain activity will be ever more important across a widening number of topics and metrics.

How RSM can help

To discuss ESG issues for your business in more detail, please contact our specialists Rich Hall or Kathy Hobbs.

This article was authored in collaboration between our ESG consulting team and our sector experts: Paul Watts, Sheena McGuinness, Grant Morrison, Graham Ricketts and David Hough.