If you haven’t been paying attention to the growing Environmental, Social, and Governance (ESG) trend, now is a good time to start because it’s not going away. In fact, despite the ongoing COVID-19 pandemic and continued volatility in commodity pricing, some oil and gas companies have already seized on the opportunity of moving forward with ESG initiatives as a way to demonstrate leadership and change investor perceptions of the industry.

As the oil and gas industry emerges from the current downturn, here’s why ESG will be crucial to its success heading into 2021 and beyond:

1) Anticipated Legal Requirements

Governments have started taking further measures to combat climate change, including instituting additional financial reporting and disclosure requirements. On Nov. 9, 2020, the U.K. implemented a rule requiring listed companies to report in alignment with the Task Force on Climate-Related Financial Disclosures by 2025. Additionally, it’s likely more U.S. states will implement timelines to achieve carbon neutrality like California.

As laws surrounding emissions and environmental reporting become more stringent, investing in ESG programs now and working with legislators and environmentalists to understand the future of the legal landscape will only pay dividends in the long run.

2) Increased Access To Capital

Sustained low and volatile commodity pricing due to the ongoing pandemic and a global oversupply of hydrocarbons has limited access to capital for oil and gas companies. This is certainly not a recipe for success in a capital-intensive industry.

Energy companies can differentiate themselves to investors and capital providers by proactively implementing sound ESG policies, financial reporting procedures, and disclosure. As a growing number of investors and capital providers become more sensitive to ESG issues, companies with strong ESG programs and reporting protocols will be best positioned to obtain debt and equity capital.

3) Future Industry Trends

Some experts believe oil and gas demand growth will peak around 2030. In fact, companies such as BP plc have publicly stated that peak oil and gas demand growth has already ended. Irrespective of forecasts, the next decade and beyond will be a period of massive transition for the energy industry towards adopting and investing in renewable energy technologies like solar, wind power, battery storage, among other sources.

Implementing a net carbon-reduction program now will not only maximize short-term success, but it will also drive long-term value creation as capital sources continue down the road of investing in sources of energy that are lower in carbon intensity and mindful of global climate change impacts.

“The development of strong ESG-related governance, disclosure protocols, and financial reporting today will set the table for sustained success as the landscape of the industry changes in the future.

While the current depression of commodity prices has taken a toll on the oil and gas industry, it’s also opening up opportunities for companies, their investors, and stakeholders to step up their commitment and conviction to the role ESG can play in forging long-term value creation. The development of strong ESG-related governance, disclosure protocols, and financial reporting today will set the table for sustained success as the landscape of the industry changes in the future.