Integrating Biodiversity Conservation into Oil & Gas Development

I recently discovered an incredibly relevant document for those interested in biodiversity within the O&G industry context.

“Most energy companies are keenly aware that failure to operate in an environmentally and socially responsible manner can present significant risks to a company’s operations and reputation. Thus, companies have increasingly recognized the business case that exists to support environmentally and socially responsible performance. Within the spectrum of environmental issues a company may face, biodiversity excites high societal interest and captures the public imagination.

The Integrating Biodiversity Conservation into Oil & Gas Development -The Energy & Biodiversity Initiative – EBI report includes contributions from various companies and institutions such as Shell, ChevronTexaco, BP, Statoil (now Equinor), Conservation International, The Nature Conservancy, Smithsonian Institution, World Conservation Union (IUCN), and Fauna and Flora International.

The Energy & Biodiversity Initiative document demonstrates that the O&G industry recognizes the importance of biodiversity and the business risks associated with ignoring it. It also highlights the industry’s commitment to biodiversity at the highest leadership levels.

Check out this impressive statement from Equinor's Sustainability Report 2003: 
"Biodiversity is nature itself – all living creatures and plants, and the ecosystems of which they form part. It is not only very important as a source of food, medicines and natural resources, but also has great spiritual, cultural and aesthetic significance. 
In our view, being able to demonstrate that we can operate in vulnerable ecosystems without lasting negative consequences for the environment is essential. Conserving biodiversity represents a key element in sustainable development. We will work with others to promote biodiversity conservation, and ensure that it is taken into account in our decisions. 
Conserving diversity Biodiversity occupies a central place in our environmental guidelines. We aim to conserve it by protecting natural habitats, avoiding the introduction of alien species and preventing impacts at the level of populations."

The document impressed me, but it also surprised me that, even after working with biodiversity and O&G for over 10 years, I only discovered it now, 20 years after its publication.

The Oil and Gas Project Lifecycle
Before reading this post, the reader may want to familiarize themselves with the oil and gas project lifecycle, which has five phases, each with biodiversity considerations addressed by the EBI.
Pre-bid: Companies assess business, environmental, and social risks, mostly through desk studies and limited field activities. Joint ventures may be formed to share risks. Exploration and Appraisal: Companies use seismic surveys and exploratory drilling to determine if hydrocarbons are commercially viable. Development: If viable, companies invest in drilling wells and building facilities for processing and transport. Operations: The field enters daily production, facility maintenance, and hydrocarbon transportation. Decommissioning: Facilities are removed, and sites are restored. Companies may exit at any stage due to concerns, reasons, or requirements, affecting biodiversity conservation continuity. </aside>

I selected more excerpts from the text to provide readers with a summary of the key points of the document.

The first argument in favor of including biodiversity considerations in decision-making – and one that is the most important driver for many leading companies – is a moral and ethical one. In other words, conserving biodiversity is simply “the right thing to do.”

”At BP’s 2002 annual general meeting, a shareholder resolution was received that required clarity in how the company manages risk in the process of deciding whether to operate in protected areas. The resolution was unsuccessful, but in response BP committed to providing information on risk assessments undertaken when decisions were made to operate in IUCN Management Categories I-IV. During 2002 no such decisions were made, but in the interest of transparency the company published details of sites where existing operations were located in categories I-VI.”

A risk- or financial-based business case is a complement to the values-based arguments that exist around environmental and social issues.

“The basic drivers for integrating biodiversity into management systems and operations are fundamentally grounded in the discipline of risk management – minimizing risks and maximizing opportunities.”

“Shell believes that customers, governments and other stakeholders want to do business with companies that are developing imaginative and positive approaches to biodiversity – companies that are part of the solution, not the problem.” – Sir Philip Watts, Chairman Royal Dutch/Shell Group

Nevertheless, many companies do not yet explicitly identify biodiversity conservation as a singular component of the company’s environmental performance needs and objectives.”

The document further addresses how biodiversity can affect project-specific performance.

At the project-level, public concern about the loss of biodiversity is an issue that should be recognized as an important business risk, and a company’s timely response to this concern is a key factor in ensuring that projects are executed without problems or delay. Identifying and addressing potential biodiversity impacts in project ESIA, company or project EMS and stakeholder consultation can reduce the risk of delays, unexpected crisis management costs, conflicts with local communities or governments, confrontations with NGOs and even the threat of civil or criminal litigation. Minimizing these risks can increase the predictability of being able to fully and effectively carry out project plans and improve the economics of a project.

Their important conclusion is that project performance can impact a company’s reputation.

Performance at the project level can affect a company’s corporate reputation. The value of a company’s reputation and leadership image is difficult to quantify, but nevertheless it plays an important role in a company’s competitive strategy. A recent study by Interbrand and Citibank estimated that intangible assets, such as brand, reputation and goodwill, account for two-thirds of the value of the FTSE 100 companies and 75 percent of the value of top U.S. companies.

In 1995, Shell’s plans to decommission its Brent Spar oil storage buoy by sinking it in the North Atlantic Ocean met with severe resistance from Greenpeace, which subsequently launched an international campaign against the company. Despite extensive research that indicated that sinking the buoy was the most ecologically sound disposal method available, a boycott led to a temporary decrease in Shell’s sales in some European countries.

A company’s track record for performance on biodiversity – and other social and environmental issues – can in turn affect its global competitiveness, in terms of access to key business resources, including land, oil and gas resources, capital and labor. A company with a positive reputation for responsibly addressing and preventing biodiversity impacts may become a company of choice for governments, investors, business partners and employees. In contrast, not managing biodiversity properly can be a long-term constraint on business and limit opportunities for future activity.

“Shell believes that customers, governments and other stakeholders want to do business with companies that are developing imaginative and positive approaches to biodiversity – companies that are part of the solution, not the problem.”

Sir Philip Watts, Chairman Royal Dutch/Shell Group

“At ChevronTexaco, Protecting People and the Environment is a core value. Our goal is to be admired worldwide for excellence in this area. We recognize biodiversity conservation is an important environmental and social concern, and we accept the challenge and opportunity to show we can protect biodiversity while providing the energy resources the world needs. As a company, we are committed to demonstrate we can achieve those goals through our performance and partnerships.”

David J. O’Reilly, CEO ChevronTexaco

And this reputational capital is what creates the business risk by limiting the company’s access to 3 key resources

1 – Access to land and potential oil and gas resources

Companies need to maintain broad access to concessions and potential oil and gas resources in order to capitalize on the best investments and opportunities for future business development. Being aware of the potential biodiversity value of an area can save time and money during the pre-bid process, as governments may subsequently choose to limit access to resources in an area identified as having high biodiversity value.

If a government does allow access to an area of high biodiversity value, a company with proven experience and success in using technology and practices to minimize the impacts of its operations may be a more attractive option as an operator. Once a project has begun, good performance in relation to biodiversity will make it more likely that future expansion plans or project proposals in another part of the country will be approved.

Additionally, anticipating the role of biodiversity in future regulations and decisions on access to land may help a company be more competitive and avoid being hurt by public policy changes that might affect future competitiveness. Choosing not to address biodiversity in company processes and practices may make a company less competitive in the face of new environmental regulations than a company that proactively invests in biodiversity issues.

In addition to ensuring access to land and potential oil and gas resources through official government processes, companies need to preserve a more informal type of access – a “societal license to operate.”

Access to Capital

Large multinational oil and gas companies tend to finance their projects internally, but access to capital and investors remains a priority for smaller and medium-sized companies and in-country joint venture partners. A poor environmental performance record may affect a company’s ability to access capital or increase the cost of capital. Shareholders may divest their holdings in the company or initiate shareholder resolutions on company performance. On the contrary, a good environmental record may mean that a company can attract and retain new investors, customers or business partners.

Companies that incorporate better biodiversity practices into their operations may have greater access to capital from private financial institutions and multilateral development banks (MDBs) that are increasingly emphasizing good environmental performance in their screening practices and conditionalities for lending (see Box 7). A number of MDBs and other public financial institutions, including the World Bank, the International Finance Corporation (IFC) and the Overseas Private Investment Corporation (OPIC), have safeguard policies, guidelines and compliance requirements on environmental and social issues, several of which relate to biodiversity conservation. (See: World Bank Safeguard Polices; IFC Environmental and Social Safeguard Policies and OPIC Environmental Handbook, Appendix F) Loss of public financing may force a company to seek more expensive private financing.

In addition, with the growing popularity of socially responsible investment (SRI), companies with good environmental performance records may have an advantage. SRI portfolios typically exclude corporate securities in investment portfolios if a company’s average of past years’ environmental and social records do not meet pre-determined standards. Biodiversity is beginning to be an explicit component of the evaluation criteria for SRI. The Ethical Investment Research Service (EIRIS) has developed a set of biodiversity criteria, in consultation with English Nature and the Earthwatch Institute, that focuses on policy and management systems. Companies’ biodiversity policies are graded as good, moderate or basic, based on whether there is a group-wide biodiversity policy or strategy covering all relevant operations or sites, whether site-based Biodiversity Action Plans are implemented and contribute to local or national conservation objectives, and whether conservation or wildlife groups are involved in the drafting of the biodiversity policy or action plans. In its 2001 survey, Business in the Environment, an organization that publishes an annual Index of Corporate Environmental Engagement, included questions on management of biodiversity issues for the first time. Questions included assessments of companies’ measurement and reporting on biodiversity issues, quality and scope of information used to measure performance, targets and policies regarding impact on biodiversity and recent improvements in performance on biodiversity issues.Access to Capital

Besides SRI funds, some mainstream investment companies are beginning to adopt policies and guidelines on biodiversity. Insight Investment, a British investment manager with more than £64 billion (US$111.2 billion) in assets under management launched an Investor Responsibility Service in late 2002. Biodiversity is one of several initiatives under that program, with an objective of encouraging companies to “minimize impact on biodiversity and support implementation of the Convention on Biological Diversity.”

Access to human and intellectual capital

Among a company’s most valuable assets are its employees and the intellectual capital built into a business. Leadership companies have long had a recognized advantage in attracting, retaining and motivating top talent. As more young people are becoming aware of environmental issues, a company’s track record on treatment of biodiversity may be one factor influencing the perceptions, decisions and motivations of new recruits.

Reading this document was educational and made me even more optimistic about a future of energy and biodiversity abundance.

The question that remains is why nobody has heard of this and whether the decision-makers on a day-to-day basis at the companies are properly incentivized to pursue these objectives as they are to pursue business milestones.