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Understanding ESG & Colorado’s Energy Transformation

The energy produced right here in Colorado, by our home-grown oil and natural gas industry, is the foundation of everything in our state, America, the world and beyond. Every business, transportation system, school, home, news organization, or social media app, would not exist without energy.

Over the last several decades, investors have intentionally shifted their money toward businesses whose operations are aimed at fighting climate change. Like the rest of us, they work for a paycheck, but they don’t see capitalism and environmental stewardship as mutually exclusive. Instead, they say the two must co-exist if we want to come close to meeting government climate goals.

READ — Exploring Colorado’s Energy Transformation: 2022 Energy Report

ESG Guidelines Rule Colorado Oil and Gas Companies

That’s brought attention to ESG, which stands for Environmental Social Governance. For those vested, it is a critical part of a company’s culture if it wants to efficiently produce energy while respecting and protecting our environment. It will provide all of us with the cleanest oil and natural gas that keeps our homes, businesses and lives running smoothly at affordable prices.

Operational Efficiencies, Innovation Improve our Environment and Economy

From the (E)nvironmental perspective, operators must show continued improvement in efforts to protect our environment. They must dramatically reduce greenhouse gas emissions with a focus on methane, conserving or recycling water and applying new technologies to make operations cleaner, safer and more efficient.

Methane Intensity in the DJ Basin

Methane Intensity
The above graph represents methane emission intensity expressed as Kg CH4/boe from oil and gas as reported to the EPA.


On the (S)ocial side, the priority must be on keeping field staff, employees and communities safe.

Companies should also build relationships with the communities they operate in, often referred to as a social license to operate.

“All components of ESG are important factors when evaluating venture investment decisions. As it relates the the ‘E’, the most immediate, effective, direct-to-the-bottom-line, capital efficient way of achieving ‘pick your climate-related goal’ is through investments that make the existing industrial sector more efficient (i.e., less energy intensive, reduce mineral use and waste, increase yields, etc.). Relatively low-cost technology and software are available to make this happen now.”

-JP Bauman, Principal, Altira Group

As for (G)overnance, it’s about aligning strategies and corporate values. A board composed of diverse members with diverse backgrounds is focused on, and supports, ESG.

The expectations inherent in new energy policies have accelerated the focus on environmental responsibility and broader ESG measures in oil and natural gas.

READ — Becoming a Zero-Emissions State: How Alternative Fuels Are Transforming Transportation in Colorado

Investor and Stakeholder Pressure

The energy industry is also experiencing pressure from investors tasked to allocate capital exclusively to companies that prioritize ESG initiatives — and they’re demanding insight into more than just financials. The emphasis on sound, consistent and comparable data for the investor community has rarely been stronger. Investors are betting that sustainable business practices are a prerequisite as we transition to cleaner energy sources, and shareholders are starting to demand practices supporting environmental stewardship. In some cases, ESG proponents argue that operational efficiencies can make the air cleaner and simultaneously improve a company’s bottom line. After all, the investment community wouldn’t push so hard if it meant their investments were to be less profitable.

ESG scores comprise metrics and set voluntary standards for a company’s operations, which socially conscious investors use to screen potential investments. In addition, energy industry analysts expect government regulations around greenhouse gas (GHG) emissions and other pollutants to only become more rigid over time. For some oil and natural gas companies, routinely mislabeled as anti-environment, this is an opportunity to accurately tell their story. Their environmental efforts and goals to decrease the carbon intensity of their operations is gaining positive attention, especially in their sustainability reports.

For example, Oxy, which acquired Anadarko Petroleum Corp. in 2019, has published a Pathway to Net Zero Strategy that underscores its commitment, demonstrated by efforts to develop and deploy revolutionary technologies to help society reach net zero while meeting urgent needs for energy and essential products. In a recent sustainability and ESG report, PDC Energy wrote in a letter to stakeholders stating, “Our operational expertise and financial fortitude allow us to set aggressive sustainability goals, and by innovating and appropriately investing we can achieve the results required in today’s dynamic energy environment. Our mission to be a cleaner, safer and socially responsible company begins in the board room and resonates through every level of PDC.”

“ESG has become a term that gets tossed around by every investor. Unfortunately, too many investors are glossing over this as a check box leading to “green washing” of this important distinction. As a true ESG investor, we believe that each investment must have real and measurable positive impacts such as carbon or waste reduction and improving diversity & equity.”

-Trent Yang, President, Galway Sustainable Capital

Others in Colorado’s oil and gas industry have joined, too. The Colorado Oil & Gas Conservation Commission noted in a report that 13 of the state’s 15 largest oil and natural gas producers have set climate and/or sustainability goals.

That’s not to say the topic isn’t being met with opposition. Some, inside and outside the oil and natural gas industry, are questioning whether the energy transformation is being unnecessarily forced with underlying political motivations. Others note the unnecessary increased energy costs the changes could reveal. In October, 19 Republican-led states coalesced to investigate six major U.S. banks and their involvement in the United Nations’ Net-Zero Banking Alliance, which they claim is hurting American companies. Hearings and legislation are expected as soon as next year.

ESG factors are, essentially, measures that address how a company protects the planet, how the company engages with its communities and the diversity of its governing board and workforce. This transparency and accountability mark a shift in mentality for many industries, including operators in oil and natural gas.

“ESG should define good operating practices, from financial stewardship to environmental stewardship, to managing people well. In my mind, it all boils down to different dimensions of governance, particularly how well a company understands, measures, and mitigates risk. Transparent, accurate, comparable data are key to differentiating the quality of a company’s operations.”

-Kelly Bennet, CEO, B3 Insight

None of this means fossil fuels are going away. Energy experts, even those who agree on the need to reduce carbon and methane emissions from the industry to combat climate change, recognize fossil fuels will continue to be important. Renewable energy sources are virtually impossible without a back-up fuel such as natural gas. The transition to cleaner energy perhaps should more rightly be called an energy transformation, with changes to how energy is produced and delivered, and recognizing that all resources — fossil fuels and renewables — are needed to meet the ever-increasing demand for energy.

How each energy source — traditional or renewable — alongside billions in investments play out during the energy transformation will be the start of a new chapter in America’s energy story. And it’s clear Colorado will be front and center.


Jon Haubert Hb Legacy Media CoJon Haubert is the publisher of ColoradoBiz magazine. Email him at [email protected].