Project Sample: ESG & Blockchain

The Oil & Gas Industry and ESG: What You Need to Know



ESG may be challenging for oil and gas companies to implement, and it may seem like it would affect profits, but investors are interested in companies that implement ESG programs. Investors are looking for companies whose business plans contribute to society in a tangible and sustainable way.

What is ESG Reporting?

Environmental, social, and corporate governance issues are covered in ESG reports. Investors, customers, and wider stakeholders get a snapshot of the business's impact in these three areas. ESG reporting helps organizations be transparent about risks and opportunities related to sustainability and ensures they consider their impact on sustainability issues.

Why is ESG Important?

In light of recent events, ESG has gained additional significance: companies have the responsibility and resources to create a more sustainable and resilient future and invest in tangible results that investors are looking for.

What are ESG Metrics?

To quantify ESG performance, investors need precise ESG metrics and tools to guide their investment process, particularly in the age of sustainable investing. The ESG objectives of investors and companies must be clearly articulated, aligned, and measurable.



The three main categories of ESG should be understood when defining metrics. Various metrics matter to each industry and organization, but metrics commonly tracked include:

Environmental Metrics

Environmental metrics such as electricity savings, fuel savings for company vehicles, carbon emission reductions, water savings, and waste diversion.

Social Metrics

Employee and occupant social metrics, such as health and wellbeing, diversity, and supply chain management.

Governance Metrics

A governance metric's relevance is determined by the presence of policies on a wide range of topics, including policies on matters related to business resilience.



Metrics like these can be used to predict a company's future financial performance, and they can be used by corporations to communicate with stakeholders, demonstrate commitment to fundamental principles, and assess environmental impacts.

What is My ESG Score?

The ESG score of an organization reflects its performance across a wide range of topics related to environmental, social, and governance (ESG).



The relevant factors can be either financial or nonfinancial, but equally compelling to the company's stakeholders. An ESG score is a way for organizations to assess and understand ESG performance both internally and across the broader corporate ecosystem.



Organizations' perceptions of their performance regarding environmental, social, and governance matters are used to calculate ESG scores. There is also a gap between perception and reality in the development of corporate reputation. A system of transparent, results-based promotion or a strong carbon emission policy is worthless if the information isn't publicly available.

How Can ESG Impact My Company?

Environmental, social, and governance (ESG) factors are increasingly considered by investors. Company performance and shareholder value can be affected both positively and negatively by ESG considerations. The ESG performance of companies has been shown to have positive impacts on financial performance and to reduce risk, especially when markets are volatile.

What Does ESG Mean in Oil and Gas?

A key element of ESG is the sustainability of a business when viewed from these three perspectives, as well as the relative risks it poses for the business and its investors. Oil and gas companies tend to focus heavily on environmental impact, but the social and governance aspects of ESG are becoming increasingly important. 



Governance is of particular importance. It includes such things as regulatory standards, government policies, and company oversight. This is a key enabler for companies and businesses to adopt better environmental and social practices. 

What is an ESG Strategy?

Environmental, social, and governance activities provide the company with the means of creating long-term value. It encompasses both financial and non-financial aspects, such as human and social capital, environment, technological advancement, business management, and governance.



A sustainable ESG business strategy is a long-term plan to improve performance and create value as part of those initiatives.



What is its significance to the oil and gas industry? As for sustainability, we see major industry players investing in renewables, but that doesn't mean fossil fuels will cease to exist. We should use ESG to tell our industry's story. ESG is impacting access to capital more than ever because there has been a shift in the investment community.



The number of ESG investments in sustainability-focused companies has increased, and these investments are tied to ESG ratings. Investors are also demanding performance-based sustainability-linked bonds and loans. ESG is more important to investors and consumers. Consumers base their buying decisions in part on social issues resulting in capital flow being affected.



It’s not just investors demanding more from oil and gas companies. Approximately 70% of employees want meaningful work and strong social policy positions from their employers.



Achieving an ESG strategy and tracking performance clearly requires time, human capital, and ultimately financial resources, not just to implement the initiatives, but also to create systems for tracking and reporting.

How to Improve Your ESG Rating

Investor interest in ESG-related topics continues to grow. Investors require credible information about the company's management of environmental, social, and governance opportunities and risk.



Here are six practical steps to improve your ESG performance.

1. Determine Your Material Topics

ESG issues are becoming more complex and companies must track them. Organizations cannot address every single ESG issue equally due to the diversity of stakeholders and topics. Your ESG strategy should instead be centered on the topics that are most relevant to your business.

1. Embrace ESG in Your Business Strategy

Investing in long-term success means understanding how companies respond to macroeconomic trends, how they identify ESG risks, and how they position themselves for long-term success. Make sure to incorporate ESG considerations into your business planning.

1. Comply with Regulatory Requirements and Global Standards

In the last 20 years, ESG disclosure frameworks have increased by 92%. The frameworks most widely cited by investors are illustrated below, but we're still some way off a global consensus.



In order to provide investors with more consistent, comparable, and reliable information, international standards and frameworks can play a critical role. Follow a recognized framework to develop an ESG strategy that will help shape the narrative in a way that investors and other stakeholders will appreciate.

1. Learn How to Interpret Your ESG Ratings

ESG ratings are used by investors to make informed decisions. Companies that receive high ratings receive more investment and lower capital costs.



Develop an ESG ratings strategy to identify gaps and opportunities to improve E, S, and G scores. This allows you to better communicate the information that matters most to your investors.

1. Ensure High-Quality Data

Consistent, clear, accurate, and comparable ESG data is important to investors. ESG data should strive to meet characteristics of:



• Accuracy: Data collection should be rigorous
• Comparability and consistency: 
• To facilitate comparison, use consistent global standards
• Boundaries: Business ownership and fiscal year alignment
• Data provision: Both raw and normalized data should be provided
• External assurance: Ensure the data's integrity by having it assured
• Balance: Give both a positive and a negative view of the situation
• Timeliness: Providing data in conjunction with annual reporting



1. Think About How You Communicate

Whatever format you choose to report on sustainability, whether it be an integrated report, an annual report, or a separate sustainability report, there are inevitably trade-offs between breadth and depth. These choices are not mutually exclusive, and you can choose a variety of reporting channels that complement each other. You should make reporting part of your overall dialogue with investors.

The Future of Social Responsibility

Oil and gas companies should seize the opportunity to capitalize on ESG given the recent increase in investor demand. By establishing consistent definitions for environmental, social, and governance metrics, the efficiency of ESG data value chains can be improved. This will lead to more effective investor interactions.



Investors are asking more questions about your company's responsible investing efforts, employee and vendor relations, environmental initiatives, and other ESG-related initiatives. You must be prepared to answer any questions they might have.



Businesses must be adaptive, adaptable, and resilient, and apply a global perspective. Business ESG frameworks ensure businesses can mitigate risk, from environmental degradation to climate change, and global pandemics to mass extinctions, as well as seize long-term growth opportunities.



Why Blockchain Smart Contracts are Beneficial to Oil & Gas



Blockchain technology has enormous potential for empowering and protecting companies in the oil & gas industry in this emerging trust economy.



Long-term difficulties in identifying lease operating expenses (LOE) have long been caused by inaccurate field data and elongated payment cycles.



Managing LOE is currently done through paper processes and tickets, which takes an average of 60 to 90 days to go through various approval processes and accounting methods. 



Operators lack the clarity or the ability to make insightful or informed decisions when it comes to planning, production, and spending.



Current operating models inhibit efforts to reduce production costs by incorporating inaccurate service estimates, delayed payments, and lengthy reconciliation and dispute processes.



To remain competitive in this market downturn, operators need to take a different approach.



As commodity prices fluctuate, operators need to abandon hefty overhead costs and profitable mindsets in exchange for faster payments, abolishing paper invoices and tickets, and achieving a desired competitive differentiation: real-time LOE.

What Are Smart Contracts?

Energy industry leaders are relying on smart contracts to drive their business forward. Using automated commercial transactions, major companies as well as their supply chain customers, partners, and vendors enjoy a variety of benefits.



Smart contract networks are capable of saving time, increasing efficiencies, and providing new levels of transparency.



Blockchain technology is used to streamline payments between oil companies and their subcontractors.



In current practice, subcontractors submit invoices up to 60 days after work is completed, and payment can take an additional 120 days. During that time, oil companies and subcontractors often quarrel over work quality or quantity, creating mistrust.



When using blockchain and smart contracts, which operate like Excel spreadsheets, keeping track of work isn't a problem.



From drill pipe measurements to connection times, the system uploads data from meters and other data-collection instruments in the field.



In the blockchain system, each of the measurements becomes a "block." A processing algorithm then runs the blocks, or encrypted data, through the contract's terms. By doing so, a "hash" is created, and if all the hashes match, the oil companies automatically pay their subcontractors.



When a subcontractor can improve the connection time by one minute, for instance, and can prove it with data in the system, they will receive an automatic bonus as per their contract. That payment is now processed automatically within seconds, rather than after 180 days.



In a nutshell, it creates ledgers for the two companies. This locks down the whole system so nobody can alter it. Through blockchain, they can create a trust environment.



Information is made more digestible by this application. Any product or service that can be measured electronically, and use a payment mechanism that is being captured electronically and executed automatically can use blockchain to solve.

What is Blockchain Billing?

The oil and gas industry is highly complex, where millions of barrels of crude oil and cubic meters of natural gas are bought and sold on international markets every day. An enormous volume of trade requires lengthy and complex contracts between the traders.



The cross-border oil & gas transaction parties have actively begun the implementation of Blockchain platforms and smart contract technology to manage such a complex network and facilitate global distribution of oil & gas. The use of smart contracts can significantly reduce paperwork, streamline the process, improve efficiency, and reduce costs.



With smart contracts, transaction requests and events are received from sensors and the smart contract generates new transactions and events by launching the running code logic in advance. Once a smart contract is executed, its results are continuously updated into the blockchain network's secure ledger, and these modifications cannot be altered or forged once they are confirmed.

What are the Benefits of Smart Contracts?

Achieving Real-Time LOE

With blockchain, physical commodity trade time can be shortened, creating a desired competitive difference: real-time LOE:

Physical Commodity Trading

There are many manual steps involved in conducting physical trades of refined products, and the same information must be entered into multiple systems, which require layer upon layer of data reconciliation.



Blockchain technology's distributed ledger capabilities can be used to reduce the amount of time necessary to reconcile price and volume differences among trade participants by making the same data available to everyone at the same time.



Furthermore, the solution can assist in reducing the risks associated with electronic document transmission. By leveraging blockchain technology, oil and gas companies can improve trade accuracy, increase scheduling efficiency, reduce back-office costs (e.g., invoicing and settlements), increase access to trade data, and accelerate working capital management.

Sensor-Driven Invoicing

Processing plant equipment and pipeline sensors enable immediate invoicing as chemicals are used or produced. Invoices can be processed in real-time by combining blockchain technology, processing plant equipment, and pipeline sensors. Sensors are used in this digitalized process to ensure accuracy in billing based on the execution of contracts.



In addition, blockchain technology (with cognitive capabilities) records, tracks, and executes contracts, and identifies fraudulent transactions. After the agreed-upon amount has been produced, a sensor confirms that the contract terms have been fulfilled and, if necessary, the system executes payment.



Enhanced transaction speed, accuracy, and security will benefit oil & gas companies and their customers. Furthermore, sensor-enabled invoicing requires fewer resources and therefore lets employees devote themselves to more value-added activities.

Contract Execution

Blockchain technology may benefit contract execution in situations where the counterparties' trust level is low or where the transaction value or complexity is high. Potential applications include:



• Complex sourcing (minimizing inconsistencies in transactions)
• Capital projects (under contract terms)
• Land transactions (by identifying and preventing fraudulent land transactions)
• Sales of oil and gas (facilitating large transactions)
• Joint ventures (improved cost-sharing and revenue-sharing audits)



This can result in a reduction in costs and an increase in productivity. It also eliminates the need for clearinghouses, confirmation processing, and other back-office functions that are associated with risk management and accounting.

Tracking ESG Targets and Practices

Blockchain can also track a company's progress in terms of ESG practices and improvements. To attract investors, companies are increasingly expected to demonstrate how they are reducing their carbon footprint, investing in communities, and incorporating diversity into leadership roles.



Monitoring emissions, fuel efficiency, and hiring practices are some of the ways companies can use the system to keep track of their work. This ledger can be shared with auditors, board members, or shareholders so they can track progress and make sure it aligns with their objectives.



Currently, the blockchain does not only automate the execution of contracts. The technology also provides permanent audits.

How Can Smart Contracts Help Oil and Gas Operators?

By reducing inefficiencies and processing time around contract execution in complex supply chains, GumboNet (by DataGumbo) helps the broader industry achieve streamlined processes and cost savings. The ability to audit ESG at a high-data level gives operators a solid advantage at satisfying shareholders and attracting investors.

Challenges to Using Blockchain Billing in Oil & Gas

Market Instability

Bitcoin's value plunged from record highs after billionaire Elon Musk announced on Twitter that Tesla Inc would no longer accept bitcoins as payment, citing concerns about "rapidly increasing the use of fossil fuels for mining and transactions". Bitcoin's value decreased over two weeks before it began to recover, and it has since plummeted again as investors have abandoned crypto.

Environmental Impact

Cryptocurrencies are not regarded by some environmental advocates and investors as a long-term solution to the problem of natural gas emission, both because Bitcoin's future is uncertain and because cryptocurrency companies also emit greenhouse gases.



The global Bitcoin industry has generated 60 million tons of CO2 emissions, roughly equal to the exhaust from nine million cars. Bank of America analysts reported in March that the number of tons has risen from two years ago by 40 million tons.



Some industry experts suggest that more durable and long-term solutions should be employed so that the gas can be used for whatever purpose it is intended for.



Experts say that long-term and durable solutions that bring that gas to market and allow it to be used for whatever its highest purpose is are needed. Virtual currency mining largely relies on coal-fired electricity, which produces about twice as much carbon dioxide as natural gas combustion.



This reduces emissions at the level of oil producers, but also globally by reducing mining in areas of the world where coal is likely to supply electricity.



Environmental advocates and some investors note, however, that the harmful emissions do not disappear. They are simply transferred to other industries. Rather than eradicating emissions, they are converted into Bitcoin.

Strategies to Successfully Implement Smart Contract in Oil & Gas Industry

With the deployment of smart contracts and blockchain technology, operators can streamline all of the disparate threads involved in production into one central location, thereby allowing them to view expenses immediately.



Implementing real-time LOE and optimizing costs can be achieved by:



• Transform manual billing, paper invoices, and human dispute resolution practices into instant, automated payments supported by real-time monitoring; vendors should be treated as strategic partners that support change management and drive improved behavior.
• Implement blockchain technology as a solution for updating traditional, old-world economic systems that isolate corporate views, increase transaction friction, and store important data in rigid IT infrastructures
• Decrease OPEX and CAPEX while improving sales through reduced underpayments by purchasers, faster collection times, and more accurate and transparent payments to royalty partners and working interest partners, resulting in increased returns for operators.
• Gain operational transparency by participating in the blockchain with shared, immutable records that enable frictionless and certain transactions 



It is time to leave the current interpretation of LOE in the past, with its considerable flaws and inaccuracies. Now is the time for operators to observe the future through the windshield. Get started with real-time LOE today.