Originally Published in Forbesby Dr. Bob Eccles
Previously I have written about the importance of the healthcare, resource transformation, food and beverage, and consumption sectors to the 17 Sustainable Development Goals (SDGs). The underlying data for that blog are based on a paper “The Relationship Between Investor Materiality and the Sustainable Development Goals: A Methodological Framework” that I wrote with Professors Gianni Betti and Costanza Consolandi of the University of Siena. A summary of our methodology is provided in my healthcare post. In brief, we mapped the 26 material environmental, social, and governance (ESG) issues (organized in terms of the categories environment, social capital, human capital, business model and innovation, and leadership and governance) of in all 77 industries organized into 11 sectors, developed by the Sustainability Accounting Standards Board (SASB), to the 169 targets of the SDGs. Mapping these issues to the SDGs’ targets enabled us to assess how each industry is creating or destroying value for society while focusing on those ESG issues that create value for shareholders. Based on this mapping we created an index that ranges from 0 to 100.
In this post I will analyze the importance of the extractive & minerals processing sector. It’s overall score is 30.4—compared to 36.0 for food and beverage, 32.6 for healthcare, 28.4 for resource transformation, and 20.1 for consumption—putting it the middle of the sectors I have written about so far. There is variation with this sector of eight industries. On the high end are oil and gas exploration (41.4), coal operations (35.7), and metals & mining (33.5). On the low end are oil and gas midstream (21.4) and iron & steel producers (22.7). In between are oil and gas refining and marketing (31.3), oil and gas services (31.0), and construction materials (27.8).
This sector has its highest impact on four SDGs. The one with the highest impact is #14 (Life Below Water-55. 0) where it touches all seven of the targets in this SDG. The other three, with about the same level of impact, are #6 (Clean Water and Sanitation-43.9 [six of six targets]), #11 (Sustainable Cities and Communities-40.8 [five of seven targets]), and #12 (Responsible Consumption and Production-46.0 [four of eight targets]). The ESG issue water and wastewater management and biodiversity impacts in the category of environment are important for all of these SDGs, as is supply chain management in the category of business ethics and transparency of payments. The SDGs for which this sector has the least impact are #4 (Quality Education-0.0) and #10 (Reduced Inequalities-13.1).
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Oil and gas exploration has a high impact on five SDGs: #2 (Zero Hunger-55.0 [five of five targets]), #6 (60.6-six of six targets), #11 (52.6-five of seven targets), #14 (70.0-seven of seven targets), and #16 (Peace, Justice and Strong Institutions-56.5 [eight of 10 targets]). The SDG ranked lowest is #4 (0.0). The impact of this industry on Clean Water and Sanitation (#6), Sustainable Cities and Communities (#11), and Life Below Water (#14) is not surprising given the production process of this industry. More surprising is Zero Hunger and Peace, Justice and Strong Institutions. The former is due to the potentially negative impact this industry can have on Targets 2.3 (agricultural productivity and incomes of small-scale food producers) and 2.4 (ensure sustainable food production systems). The latter is due to its potentially negative impact on Targets 16.1 (significantly reduce all forms of violence and related death rates everywhere), 16.3 (promote the rule of law at the national and international levels and ensure equal access to justice for all), and 16.10 (ensure public access to information and protect fundamental freedoms, in accordance with national legislation and international agreements). The material ESG issues here are human rights and community relations (social capital), environmental social impact on assets and operations (business model and innovation), accident and safety management (leadership and governance), and regulatory capture and political influence and supply chain management (business ethics and transparency of payments).
It is also perhaps surprising that SDG #13 (Climate Action) is not ranked that highly. The reason is that only three of SASB’s material ESG issues for this industry are linked to the three targets of this SDG. These targets are largely about things to be done at a national level and there is little an oil and gas exploration can contribute here, and in some cases the possible contribution is a negative one (regulatory capture & political influence). Three SASB issues—environmental social impacts on assets & operations, regulatory capture and political influence, and supply main management—are related to Target 13.1 (strengthen resilience and adaptive capacity to climate-related hazards and natural disasters in all countries). Regulatory capture & political influence is also linked to Target 13.2 (integrate climate change measures into national policies, strategy, and planning). No SASB issues map to Target 13.3 (Improve education, awareness-raising and human and institutional capacity on climate change mitigation, adaptation, impact reduction and early warning).
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Illustrating how industry differences affect potential SDG impact, the only SDG the oil and gas midstream industry (21.4) shares with oil & gas exploration is #14. (60.0-seven of seven targets). The other four SDGs for which midstream is important are #1 (No Poverty-36.4 [four of five targets]), #7 (Affordable and Clean Energy-30.4 [three of three targets]), #9 (Industry, Innovation and Infrastructure-33.3 [four of five targets]), and #12 (Responsible Consumption and Production-35.5 [four of eight targets]). Note that the average impact for its top five (37.1) is lower than for the top five in exploration (58.9). The surprising one here is No Poverty and this comes from potentially negative effects on Targets 1.1 (eradicate extreme poverty for people everywhere), 1.2 (reduce at least by half the proportion of men, women and children of all ages living in poverty), 1.4 (ensure that all men and women, in particular the poor and the vulnerable, have equal rights to economic resources), and 1.5 (build the resilience of the poor and those in vulnerable situations). The material ESG issues of relevance are accident and safety management (in leadership and governance) and competitive behavior and supply chain management (in business ethics and transparency of payments). The only ESG issue for this industry linked to Climate Action is supply chain management for Target 13.1. There are six SDGs where this industry has a very low impact: #2 (Zero Hunger-10.0), #4 (Quality Education-0.0), #5 (Gender Equality-11.1), #8 (Decent Work and Economic Growth-10.4), #13 (Climate Action-11.1), and #16 (Peace, Justice and Strong Institutions-4.4).
A worker unloads crude oil from a tanker at an Enterprise Crude Pipeline LLC storage facility in Loving County Texas, U.S., on Sunday, Dec. 16, 2018. Once the shining star of the oil business, gasoline has turned into such a drag on profits that U.S. refiners could be forced to slow production in response. Photographer: Angus Mordant/Bloomberg© 2018 BLOOMBERG FINANCE LP
Oil and gas refining and marketing (31.3) and oil and gas services (31.0) have very similar SDG profiles. In the top four of both are #7 (Affordable and Clean Energy—although the latter has more impact), #11 (Sustainable Cities and Communities), and #14 (Life Below Water). Refining & marketing also has #12 (Responsible Consumption and Production) whereas services has #13 (Climate Action). Both industries also have #4 (Quality Education-0.0) and #10 (Reduced Inequalities-9.1) in their bottom two and with the same rating. Again reflecting industry differences, these two industries share #7 (Affordable and Clean Energy) with midstream but it unsurprisingly does not appear in the top list for exploration.
An excavator scoops up coal in an open pit at a coal deposit in Mongolia. Photographer: Taylor Weidman/Bloomberg© 2018 BLOOMBERG FINANCE LP
The extractive industries of coal operations (35.7) and construction materials (27.8) have very similar SDG profiles to oil and gas exploration sharing SDGs #2 (Zero Hunger), #6 (Clean Water and Sanitation), #11 (Sustainable Cities and Communities), and #14 (Life Below Water-65.0). Other important SDGs for coal operations are #8 (Decent Work and Economic Growth-43.8 [nine of the 10 targets]) and #15 (Life on Land-43.9 [six of the nine targets]). The other important SDG for construction materials is #12 (Responsible Consumption and Production-45.2 [four of eight targets]). Metals and mining is almost identical to construction materials in sharing SDGs #6, #11, #12, and #14 and at the same rating level, with these being the only highly-ranked SDGs. SDG #4 is rated 0.0 for all of these industries with substantial variation in terms of the other mostly lowly-ranked SDGs.
Workers supervise the flow of hot liquid metal at the blast furnace during the iron smelting process at the Thyssenkrupp AG plant in Duisburg, Germany, on Wednesday, Dec. 20, 2017. Thyssenkrupp reached a tentative deal in September to merge its European steel businesses with Tata Steel Ltd. in a bid to create the region’s second-largest producer and help tackle overcapacity in the industry. Photographer: Krisztian Bocsi/Bloomberg© 2017 BLOOMBERG FINANCE LP
Iron and steel producers (22.7), with five highly ranked SDGs, have a somewhat mixed profile compared to these other industries. Like all of the oil industries except for exploration, SDG #7 (Affordable and Clean Energy-34.8 [three of three targets]) is on the list, as is #12 (Responsible Consumption and Production-54.8 [four of eight targets]), which is also on the list for coal operations, metals & mining, and construction materials. It shares #6 (Clean Water and Sanitation-30.3 [five of six targets) with oil & gas exploration, coal operations, metals & mining, and construction materials. It shares #13 (Climate Action-33.3 [one of three targets) with oil and gas services, making these the two only two industries in this sector where this SDG makes their top list. Unique to iron & steel producers is #3 (Good Health and Well-Being-33.3 [three of nine targets]), reflecting the dangerous nature of the production process in this industry.
In my next post on this topic I will write about the Renewable Resources & Alternative Energy sector comprised of biofuels (30.8), solar energy (38.2), wind energy (18.3), fuel cells & industrial batteries (17.0), forestry and logging (14.3), and puldp an paper products (24.4).
I am a Visiting Professor of Management Practice at Saïd Business School,
University of Oxford, and author of several books on integrated reporting, sustainability and the role of business in society. My research is focused on sustainability from both a company and investor …MORE
The focus of my work is leveraging the capital markets for sustainable development through the integration of ESG factors into the strategic decisions of companies and investors’ investment decisions.