The report provides Vigeo Eiris’ exclusive opinion on 89 companies belonging to the Oil Equipment and Services sector. The report includes the sector’s strengths, innovations and best practice as well as controversies, vulnerabilities and emerging challenges such as climate change, pollution prevention and control, corruption, and local social and economic development. It analyses performance scores and advanced indicators on critical issues such as energy transition, business ethics, due diligence on social and environmental risks in the supply chain, human capital and human rights, governance, executive remuneration, transparency on taxes, integrity of lobbying practices, the level of sustainable products & services, and contribution to the UN Sustainable Development Goals.
- The Oil Equipment and Services sector is divided into six main subsectors: Geophysical services, Drilling services, Equipment manufacturers, Transport & Storage services, Engineering and Consulting services, and Production services.
- Vigeo Eiris awarded an average overall score of 32.2 to companies in the Oil Equipment and Services sector, on a scale of 0 to 100. The sector’s performance remains unchanged since our previous analysis.
- The sector ranks 14th out of Vigeo Eiris’ 39 sectors, which cover a total research universe of 4,500 companies. Previously, the sector ranked 15th.
- Sector leaders are mostly in Europe and Asia Pacific, whilst laggards are mostly listed in Emerging Markets. This is mainly due to a better average performance in the assessment on their policies and implementation of measures in place to address various CSR issues of the European and Asia Pacific companies compared to their Emerging Markets counterparts.
- The Oil Equipment and Services sector reporting rate is 58%, which is in line with the universe average (58%), with European and Asia Pacific companies communicating most comprehensively on their ESG policies, practices and performances.
- ESG risk mitigation scores are limited in relation to reputation (31/100), operational efficiency (34/100), and legal security (37/100), and weak in relation to human capital (25/100). The sector’s ability to mitigate reputational and human capital risks is largely hindered by its non-transparency on measures in place to reduce its biodiversity impact, and controversies concerning work accidents.
- The sector faces 67 controversies, affecting 34% of the companies: 4% are involved in critical cases, 19% in high severity cases, 7% in significant cases and 3% in minor cases. The most recurrent controversies concern the sector’s pipelines operations impact on local communities, pollution incidents, corruption, and tax avoidance.
- Climate Change: companies display weak performance on climate change mitigation strategy considering their roles in the oil & gas industry value chain
In line with the global conventions of the 2015 Paris Agreement and other energy transition laws worldwide, oil equipment and services companies while providing equipment manufacturing, production, engineering and consulting services are expected to develop climate change mitigation strategies for their own operations as well as product and service provided for the oil industry. For example, companies involved in production services are expected to develop strategies to reduce energy consumption linked to oil production and equipment manufacturers could provide energy efficient products and infrastructure such as drilling rigs and vessels. Yet, 42% of the companies in this sector have not reported on the resources allocated to the development of new green technologies such as carbon capture & sequestration or energy efficient pieces of equipment. In addition, only 15% of the companies in this sector disclosed quantitative targets to reduce their own GHG emissions, and only 3% disclosed targets to reduce energy consumption.
- Pollution Prevention: a sector’s overall performance marred by pollution controversies
Oil equipment and services companies are involved in the entire value chain of the oil and gas exploration and production notably in providing midstream and drilling services. Hence, companies are exposed to lawsuits and operation shutdowns because of industrial accidents that lead to environmental pollution, as was the case of Transocean and Halliburton in the Deepwater Horizon accident of 2010. Yet, the sector average performance remains limited (38/100), and no company disclosed any commitment to prevent and manage accidental pollution in co-ordination with their clients. Furthermore, 76% of the companies did not report on quantitative data on the environmental incidents or spill volumes. Lastly, 16 companies in this sector faced controversies linked to environmental pollution, including 9 companies with controversies of critical or high severity. Between 2017 and 2018, the Rover pipeline owned by Energy Transfer Equity through its subsidiary Energy Transfer Equity witnessed major spills during its construction. The spills led to a final USD 2.3 million fine by the Ohio Environmental Protection Agency (EPA).
- Local social and economic development: controversies linked to pipelines’ impact on local communities and sector’s low level of tax transparency
Oil equipment and services companies operate in several local communities and are expected to be involved in creating sustainable local communities in terms of support for cultural heritage and social activities as well as providing programmes to increase the local capacity. These involvements could be in the form of financial support or direct involvement in youth programmes, cultural programmes, and vocational institutes. Furthermore, adopting responsible tax strategies is vital in helping and growing the economy of the local communities, where these companies operate. The sector average performance on this criterion is limited (30/100), and 6 pipeline operators face controversies related to their pipelines’ impact on the local communities’ social and economic activities. Regarding tax transparency, only 6 companies in the sector have reported transparently on taxes paid and 51% have operations in tax havens or jurisdictions not compliant enough on OECD tax transparency rules. Besides, 3 companies in the sector faced controversies linked to tax avoidance.
- Corruption prevention: comprehensive reporting on anti-corruption policies not matching results
Following the recovery from the oil crisis of 2014, oil and gas exploration costs are on the rise again, and global oil production has increased by about 3% since 2014. Africa, Asia, Latin America and the Middle East present key growth markets for the industry. Consequently, oil equipment and services companies have set up operations in these regions, which are considered high risk according to the Corruption Perceptions Index by Transparency International. Meanwhile, the sector displays an average limited performance (44/100) on the prevention of corruption. Even though 89% of the companies in the sector publicly disclose anti-corruption policies, only 8% of them are transparent on the number of internally-reported corruption incidents. Overall, the sector face 14 corruption-related controversies, including 10 companies with controversies of critical or high severity as illustrated recently by the Bourbon legal case in Africa.
Best performing areas:
- Internal controls & risk management
- Prevention of Corruption
- Board of Directors
Worst performing areas:
- Management of Environmental Impacts from Transportation
- Social Dialogue
Top Performing Companies:
- Europe: Saipem (57/100)
- North America: Enbridge (50/100)
- Asia Pacific: Keppel Corporation (52/100)
- Emerging Markets: Ultrapar Participacoes (33/100)
Companies making best progress since 2017:
- Europe: Lamprell (+13)
- North America: Plains All American Pipeline (+5)
- Asia Pacific: Keppel (+7)
- Emerging Markets: Total Maroc (+14)
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