Why ESG-focused U.S. Shale Producers Perform Better Over Time

In a new study evaluating the ESG performance of 43 public oil and gas producers in the U.S. and Canada, Rystad Energy found that those with a higher #ESG score performed better over a five-year period.

Rystad examined this field of producers, which included Exxon Mobil Corp., Chevron Corp. and BP Plc, and compared their ESG performances against their stock prices to understand how a focus on ESG issues might impact their share performance.

A matter of perspective

In the report, Rystad looked at two distinct timeframes. In the short term, indexing from January 2021, producers with the worst ESG ratings gained almost 250 points compared to just 150 points for companies with the highest scores.

But when indexing from December 2016, those with the best ESG ratings gained 78 points while the lowest performers dropped 12 points on average.

Built for the long haul

Even removing ESG from the equation, there's a straightforward explanation for the long-term performance of producers with high ESG ratings: they're built for the long haul. Companies with established sustainability strategies are also the ones with stronger finances.

The smaller, more volatile producers who are higher leveraged and undervalued are more likely to see big swings in an upcycle. They also have less financial endurance and underdeveloped sustainability improvement plans.

Generating investor appetite

While the producers who saw the best increase from January 2021 didn't have strong ESG performances, the long-term growth of producers with high ratings shows that investors are hungry for companies with positive ESG performance.

“It is clear that ESG performance impacts investor appetite, even though ESG scores have not been the lead indicator of stock growth during the latest market recovery in 2021,” Alisa Lukash, Rystad Energy’s vice president of shale research, said in a statement.

A balanced focus

Right now, U.S. producers are balancing their ESG performance with a need to increase production. The situation calls for higher output at a time when the industry is under tight scrutiny to meet its climate goals.

ESG, it seems, remains a focus for major producers.

Rystad's analysis found that supermajors scored the highest on social parameters while both supermajors and diversified shale operators performed well on environmental concerns.

Chevron, the top-scoring company, announced last week that the company's participating North American upstream assets earned Project Canary’s highest ratings on operational and environmental performance.

Want to learn more about how ESG ratings of #oilandgas operators are impacting their long-term financial performance? Join Hart Energy Conferences for the Energy ESG Conference in Houston on Sept. 8 for a deep dive into ESG 2.0 and the topics shaping the future of ESG.