Big Oil braces for fresh pressure over climate strategy, diversity

Published 13 March 2019

Life doesn’t seem to be getting any easier for hydrocarbon producers despite
their return to bumper earnings from firmer prices.

As energy executives prepare to face activist investors at annual general meetings next month, pressure for faster change seems to be coming from all angles. Already under siege to de-carbonise their long-term business models, Big Oil is still struggling to attract talent and overhaul its male-dominated management structures.

With the AGM season fast
approaching, climate-change related proposals from US investor groups alone are
expected to hit a new record of over 90 this year, up from up from 36 in 2013,
according to ISS Analytics.

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At the International Petroleum (IP) Week last month, an annual London
gathering of traders and industry executives, corporate hand-wringing over the
industry’s present and looming business woes was palpable.

The key message from the headline speaker – the head state energy giant Saudi Aramco Amin Nasser – was clear; there is a “crisis of perception” that the global oil and gas industry has little future, risking a major energy supply crunch in the years ahead.

“Facts and logic” over the need for hydrocarbons are being ignored
and the importance of oil is “misunderstood” by both the public and
climate activists, the event heard.

Courting millenials

Justified or not, public perceptions about the future for hydrocarbons are certainly hitting producer’s ability to hire and retain expertise.

Oil majors have for years been lamenting their fading appeal to young minds as a future career path, as they struggle to shake off their image as a dinosaur industry ready for obsolescence. Concern is now growing within the industry that the digital revolution is hoovering up the best young talent.

With more of the talent pool opting for alluring jobs in the technology
sectors, new geologists and petroleum engineering graduates have been in
short supply, putting pressure on wages and driving upstream costs.

To compete, oil companies at IP Week talked up the need to engage new recruits with their own digital initiatives. Representations from BP, Total and Equinor all said they are looking to double down on efforts to embrace the “disruptive” potential of new tech such as quantum computing, artificial intelligence, and blockchain.

“Millennials … are not motivated as much by money; they are driven by
mission and meaning,” Mr Nasser said. “We need to inspire them …
with the technology-driven enablers we are contributing to address some of the
world’s greatest challenges.”       

Lagging on diversity

Shareholders have also been increasingly targeting companies with little or
no female representation on their boards. As representatives of blue-chip
power, Big Oil is very much in the firing line.     

Last year, Legal & General Investment Management, one of the biggest
investors in the UK stock market, announced it would step up pressure on
companies by voting against the chairs of FTSE 350 firms at annual meetings if
their boards were not at least 25 per cent female.

Tellingly, during one IP Week session, an all-white male panel of industry
executives was quizzed from the floor on how oil majors can tackle the lack of
diversity in their boardrooms.

Big corporations have spent billions of dollars attracting and managing
diversity, but they still face discrimination lawsuits and, for many,
their leadership ranks are stubbornly white and male.

Overall, 22% of the global oil and gas sector’s workers are women, according to a 2017 study by Boston Consulting Group. Only the construction section fares worse.   

The problem is most visible, and arguably controversial, at the top of the corporate food chain: in the boardroom. An EY survey last year found only 11% of the world’s top oil and gas senior executives are women.

Top female leadership roles are also the hardest to fill, with the
retention of women beyond the mid-career, middle management levels a particular
challenge.

But to claim there has been a little progress in gender leadership roles is
unfair. Government targets and the rising threat of shareholder action has
already pushed most companies to take action.

In the UK, female participation on boards in the FTSE350 has more than
trebled to 27 % since the 2011 landmark Lord Davis review which set
“soft” targets.

Detractors point to the very low starting base, and many shareholders now
focused on gender parity in the workplace are still frustrated by the slow pace
of change.

This poses a continued dilemma for international and national oil
companies which – despite making progress on improving the ratio
of top women to men – are still being labelled as big “boys’ clubs”.
 

Gender equality aside, producers also face rising expectations that board diversity translates to stronger earnings. Simply put, more diversity is now seen as a performance driver critical to business success.

So how should the energy industry respond to its new challenges? Perhaps
simply claiming that its purpose and value is “misunderstood” due to
a “crisis of perception” might not be the best way forward, BP’s
upstream chief Bernard Looney suggested at the London event.

“We run a slight risk of feeling misunderstand and therefore our
response is to shout louder,” he said in response to a question on how oil
companies can navigate the shift to clean energy.

“I don’t believe that shouting louder is a way to articulate our purpose. 
We have to find a way to be more engaged, but not do it in a way that appears
defensive.”

That same prudence over the message will need to be in plentiful supply as oil majors face investors at AGM’s next month.
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Source: Platts – The Barrel Blog – Big Oil braces for fresh pressure over climate strategy, diversity