6 Ways Covid Forced Big Oil Into ESG – Helping Women

“Houston, We have a problem,” is the famous line from the movie “Apollo 13” based on astronaut Jim Lovell’s words to NASA Mission Control during the very real near-catastrophe of its mission to the Moon when it lost electrical power on April 13, 1970.  

It could also summarize the state of Big Oil and the traditional energy sector in this post-covid, new ESG-focused era. “Put simply, the Covid-19 pandemic has created the biggest shock to the global energy system since at least World War II,” David Turk, then-Deputy Director of the International Energy Agency (IEA) told the Senate Energy and Commerce Committee on June 16, 2020. Turk is now Deputy Secretary of Energy.

It also forced the much-needed transformation, according to Deloitte’s head of the Energy, Resources and Industrials practice, Kathryn Pavlovsky. She told me on my Electric Ladies podcast recently that Covid provided a “dry-run” for Big Oil and the energy sector writ large for what we need to do to avert the irreversible, catastrophic potential impacts of climate change. “It’s going to be that rate of decline that is needed to achieve some of the commitments that we’re making across the globe…by the timeline of 2050,” adding that, “it’s really interesting to see what it required in the last 18 months to actually hit that and what it means going forward.”  

These “commitments” are the ones being taken at the big UN climate conference next week in Glasgow, Scotland, known as COP26 and in other boardrooms.  As global leaders, including President Joe Biden, converge there in person for the first time in two years, the ESG era – for environment, social and governance – is now a C-level business, economic and geopolitical strategy, as well as an investment one.

In past economic crises, talk of protecting the environment might have taken a back seat to getting the economy back on track. Not this time. “What is intriguing,” Pavlovsky said, “is that the dialogue around environmental, social, governance, and climate did not slow in the (energy) sector in part, because I think it was obvious the evidence of what actually can be realized when we have, our activities reduced, whether it’s on the commercial level, whether it’s on the personal level.”

Here are six ways Pavlovsky said covid jolted Big Oil and the energy ecosystem into an ESG-focused “new normal”:

·      Changed demands for energy: When millions of people are continuing to work remotely, or coming to the office part-time, Pavlovsky asks, “Are you just displacing the consumption, or are you actually reducing it?” And, what does that mean, “recognizing that the cost models that (they) operated on the past, aren’t going to carry forward into the future?”

·      Big Oil goes “net zero”: “Many (energy) companies during the height of the pandemic were announcing their net zero goals,” Pavlovsky pointed out, “Certain of the super majors like BP and Shell actually hardened their goals and announced production cuts going forward over the next decade through automation and looking for opportunities to do this.” BP said it will be net zero by 2050 “or sooner,” seeking to “decarbonize and diversify into different forms of energy, such as renewables, biofuels ‎and hydrogen,” while also keeping oil and gas in their mix.

·      Strong investor pressure: Climate-activist investors are making an impact. For example, Exxon-Mobil was forced by activist investors to swap out a couple of long-term board members for those more climate-focused. Since then, the company is reportedly considering announcing its own net zero goals.

·      Increased transparency demands: The Securities and Exchange Commission (SEC) and other regulatory bodies are developing new reporting rules, based on demands from investors amid confusion due to the current array of voluntary reporting systems. Pavlovsky insists that, among Big Oil and the energy sector players overall, “there is a welcoming and a reception to receiving the additional guidance, to drive the consistency in the reporting…to having a roadmap.” She said these rules would enable more accurate comparisons between companies and industries.

·      A transformed energy workplace: What does “return to work” look like now in the energy sector? Pavlovsky highlighted that these massive changes converge with “significant advancement in both information technology, as well as operational technologies,… (for example) the pandemic was certainly an accelerator for digital.” These both change the configuration of the energy sector workplace and could smooth the transition to this “new normal” that demands less energy, less fossil fuel and dramatically fewer emissions. “We did see that the industry accelerated its energy transition.”

·      New needs and new skills create a more diverse workforce: One of the most intriguing things Pavlovsky said in our interview is that the rapid shift to new information, digital and operational technologies expedited by Covid-19 opens job and career opportunities for more diverse populations. “If you look at the challenges ahead of the industry and ESG and,” she said, “and what has been forced through the pandemic, it actually opens up, I think the option to really drive more diversity, and attract more women to the workforce.” She added that, “the combination of the nature of the work and the reskilling, as well as the hybrid model and, and what they open up for women in terms of creating more flexibility.”

Now for the hard part though. The pandemic forced the energy sector to address all this low-hanging fruit in their business models and operations to reduce emissions and pivot to the new demands. “We’re now getting to a place in the journey where it’s getting harder,” Pavlovsky says.

But the energy sector can play a crucial role in ESG 2.0. “They also recognize they can be a really significant part of the solution…..(and) can contribute. Whether it’s our technological solutions, whether it’s the talent that we bring to the market, we actually have a real role in shaping this across industries and sectors globally.”

Listen to Joan’s full interview with Kathryn Pavlovsky on Electric Ladies podcast here.