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Initiating ESG Analysis of the Energy Services Industry
Highlights from Energy Services.
Waqar Syed, MBA
On January 10th, we publish our inaugural ESG ratings across 27 North American Energy Services under coverage. This report is paired with our ATB ESG whitepaper. Our analytical framework is based on the Sustainability Accounting Standards Board (SASB) standards but incorporates additional ATBesg analysis to better align with our analytical perspective and improve comparability across companies. Going forward, we plan to incorporate ESG analysis within our broader research practice and periodically update our methodology alongside improving disclosures within the industry.
Energy Services Uniquely Positioned to Improve the Environmental Footprint of Energy Intensive Industries
While the Energy Service sector itself doesn’t have a large environmental footprint, it provides services and equipment to the upstream and midstream sectors which have much larger environmental impacts given that emissions are accounted for by customers when emitted on customer sites. In this regard, the Energy Services sector is well-positioned to capitalize on opportunities to advance emissions reduction agendas for customers through the development and deployment of technology. Within the report, we highlight numerous efforts and opportunities for energy services companies to drive improved environmental performance for the energy industry and for other energy-intensive industries with positive outcomes for investors.
Our Framework for Evaluating Energy Services ESG Performance
Sparse environmental disclosures across our Energy Services coverage was a primary challenge. While we expect strengthening disclosures over the next 12-18 months, we adopt a hybrid framework for environmental analysis that includes both analyses of disclosed data on fuel consumption, and Scope 1 emissions, which we supplement with a business mix analysis that leverages our understanding of energy intensity, fluid handling risk and exposure to carbon reduction and energy transition opportunities across business lines. Our social analysis framework focuses heavily on quantifiable safety metrics given their high degree of relevance to competitive positioning in the industry, and also incorporates an analysis of corporate restructuring as a proxy for the stability of corporate culture and employee turnover. We depart most from the SASB framework for our governance analysis where we adopt an in-depth and industry-agnostic framework based on governance best practices as recommended by the CFA Institute and the International Corporate Governance Network.
ESG Tiering Across Our Coverage
In the context of weak “E” related disclosures, we adopt a four-tier rating system for our final ESG scores, with Tier 1 being the highest.
Waqar Syed, MBA 720-683-6704
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