The abbreviation ESG took three very different themes and lumped them all together, cautioned Ernst & Young EMEIA energy and resources partner Jon Clark. He was participating in a panel discussion at the Africa Oil Week conference, at the Cape Town International Convention Centre, on Thursday.
ESG stood for environmental, social and governance. Of the three, the top one, he affirmed, was G. No-one would invest in a company or in a project unless it had good governance. In terms of access to capital, E was the third-ranked element in ESG.
The importance of governance, but at the national, not project, level was highlighted by another panel participant, ICA-Finance senior adviser Heine Melkevik. He cited the case of a country – not an African country – where national legislation defined the gas by-produced in oil fields as waste, which meant that all the gas had to be flared, which had serious environmental and health consequences for that country.
Regarding the ESG aspects of projects, these had to be matched with their revenue streams, pointed out another panel member, Seplat Energy GM commercial and corporate finance Brian Marcus.
For his company, the social aspect of ESG was very much about employment and using local contractors wherever possible. That was probably the most important social action they undertook, although they had other social programmes as well. Creating local employment had always been the company’s approach.
“One thing that is super-key is what is being done with communities,” stressed panel participant and Africa Finance Corporation (AFC) senior VP financial advisory Mohammed Abdul-Razaq. For African oil and gas projects, community development programmes were essential. It was very important for AFC, as an institution, to have a clear view of the social impact of their investments.
“But there’s also the societal benefit of energy,” reminded Clark. Having electricity brought major benefits to everyone.
“The providers of capital are all trying to measure value in different ways,” he observed. The return on capital was now only one factor. But he wished that, worldwide, the ways people measured value could be brought together “into one bucket”, inside of different bodies having different metrics.