Acorn Notes

Issue No. 14, August 2012

Building Environmental and Social Governance in Host Countries – An Increasing Priority for Extractive Industries

The demand for stronger, more consistent environmental and social governance will be one of the most important trends facing E&P activities in both new and mature oil and gas operations over the next five years. Financiers, non-government organizations and national governments are quickly equipping themselves with knowledge of “good international industry practices” for environmental and social risk management relative to E&P activities. 

This need for stronger and more consistent governance is particularly notable within oil producing countries falling into one of three socio-political groupings. These countries include:

  1. Developing countries experiencin g a sharp growth in production (typically offshore);
  2. Post-conflict countries seeing increased prospects due to promising results from initial exploration activities (typically offshore); and
  3. Developing and developed countries facing sharp increases in (onshore) shale field production.

Developing Countries

A number of the world’s developing countries have been blessed with a newfound wealth of oil and gas resources. Ghana serves as a good example of this. The discovery of the giant Jubilee field offshore Ghana has provided the country with a great opportunity for development and capacity building. Ghana’s next steps will involve adopting and implementing the norms needed to apply good international industry practices as well as developing sufficient decision-making capacity and infrastructure to support performance of the adopted practices. Nevertheless, Ghana’s oil boom, while impressive, is not altogether unique. Countries such as Uganda, Kenya, Mozambique, Trinidad and Tobago, Colombia and numerous others are now experiencing, or have recently experienced, a swell of oil production for the first time in their histories. Like Ghana, each is evaluating current regulations to ensure they are prepared to both reap the benefits of hydrocarbon production and simultaneously protect their natural resources and communities from negative impacts.

Oil and gas companies have a keen interest in rational regulatory and governance capacity, as a clearer framework will ensure less uncertainty in what is expected of them in terms of environmental and social performance. As a result, oil and gas companies and country partners may benefit from increased support of host governments in developing governance programs and building the capacity needed to consistently implement them.

Oil and Gas Company Benefits:

  • Fewer surprises from the governments will mean fewer critical delays and cost-overruns. 
  • Project interruptions and cost increases are minimized due to evolving government and community expectations for increasingly stringent above-ground risk management.

Host-Country Benefits:

  • Collaboration between oil and gas companies and in-country governance bodies will facilitate stronger partnerships and more consistent performance across the industry.
  • Partnerships will facilitate the establishment of standards that are both sufficient and practical with regard to country needs.

Post-conflict countries

While developing countries are faced with the challenge of developing consistent social-governance and regulatory frameworks, post-conflict countries that are opening to promising exploration programs (e.g., Liberia, Cote d’Ivoire, Kurdistan and Nicaragua) and/or trying to revive production after civil/political conflicts (e.g., Libya, Iraq, Venezuela) must deal with an added challenge. Post-conflict countries must dedicate themselves to the formidable task of rebuilding basic political and social programs that reinforce a commitment to human rights and establish a basis for public trust. These countries know that they also need to develop robust mechanisms for environmental and social governance of their budding hydrocarbon industries if their emerging leaders are to build domestic support and attract foreign investment. Similar demands are placed on countries struggling with border disputes and other political strife while trying to optimize newfound hydrocarbon reserves (e.g., Israel, Cyprus, Cuba, Greenland/the Arctic nations).

Countries with Increased Shale Field Production (onshore)

The advance of technology to produce from shale fields, albeit in the context of increasing concern over associated environmental and social risks, has brought new opportunities and responsibilities to rural areas previously isolated from oil and gas development activities. Many countries, such as Poland, China, France, Colombia and Canada, are finding that the regulatory requirements and institutions they had constructed for managing potential impacts of oil and gas production need to be retooled. Similarly, in the aftermath of the Macondo oil spill, the US is finding a need for revision of its regulatory requirements as environmental and social impacts and stakeholder concerns call into question the effectiveness of current measures. These changes are needed as citizens demand more information, more access and more regulatory control over the way below-ground resource development influences above-ground environmental, health, safety, social and economic conditions in host communities.

Acorn International Notes

Acorn Notes is a series of periodic papers to share ideas regarding EHSS and sustainability management for international industry.

Issue 21 - March 2014: Above-ground Facilities and Stakeholder Engagement: Deploying the 'CAC'
Issue 20 - March 2014: A Starting Point for Shared Equity
Issue 19 - March 2014: What It Takes to Run a Great Consulting Firm
Issue 18 - February 2014: Considering Human Rights - Trends and Lessons in Oil and Gas Impact Assessments
Issue 17 - June 2013: Managing Environmental Health in International Development Projects
Issue 16 - January 2013: Integrating Environmental and Social Performance throughout the Project Lifecycle
Issue 15 - January 2013: The State of Shale Play in 2013
Issue 14 - August 2012: Building Environmental and Social Governance in Host Countries
Issue 13 - May 2012: Human Rights and Business: A New Era
Issue 12 - February 2012: Extractive Industries Confront Pressure for Greater Transparency
Issue 11 - January 2012: Key Updates to the IFC Sustainability Policy and Performance Standards
Issue 10 - June 2011: Oil & Gas and NGOs: New Rules of Engagement?
Issue 9 - February 2010: Annual Study of Sustainable Development Priorities
Issue 8 - January 2009: Annual Study of Sustainable Development Priorities
Issue 7 - May 2008: Top Ten Lessons Learned About Health Impact Assessment
Issue 6 - January 2008: Annual Study of Sustainable Development Priorities
Issue 5 - September 2007: Results of web forum with our International Partners
Issue 4 - January 2007: Annual Study of Sustainable Development Priorities
Issue 3 - May 2006: Suggestions and tips for safe international travel
Issue 2 - January 2006: Annual Study of Sustainable Development Priorities
Issue 1 - November 2005: The Top 10 "unspoken" criteria for determining the success of EIAs


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