Recently, the Western Cape High Court ruled in favour West Coast fishing communities that sought an urgent interdict for a seismic survey by Searcher Seismic. Searcher SeismicAn Australian company that provides seismic data for the oil-and-gas industry.
The court found that the seismic survey proposal was not in line with local concerns. It is becoming more important to integrate the licensing and exploration process due to the rising global oil price and subsequent efforts by oil companies to accelerate new oil and gas exploration and production in order to increase supply environmental, socio-economic and governance (ESG).
Shell attempted to explore for oil off South Africa’s Wild Coast for some time before the Russia-Ukraine crises and subsequent oil price shock. Community groups demanded an interdict.
Africa’s Good Governance AnalysisThe Initial Shell court judgementESG performance was also highlighted. The decision by the high courts 2021 to reverse the initial judgement and prohibit Shell from continuing with the seismic survey demonstrates the importance of incorporating ESG performance into business decision making processes. This is especially true in relation to the 26thConference of the Parties 26 (COP26), agreements South Africa made to accelerate the global transition to zero-carbon emissions.
What are the criteria for environment, governance, and social?
ESG performance speaksThese are three factors that were historically overlooked when measuring company effects. It is common for financial reports to not capture a company’s effect on the environment or the communities it operates in. The same applies to governance principles like a thorough board-level review to ensure operational integrity. Globally, there is a growing movement to ensure that ESG performance is a key criterion for companies in all industries to gain access to responsible finance.
ESG factors affect a wide variety of industries. The extractives sector has particular ESG risks that are challenging to address. ESG was a key component of the external legal constraints that companies will be subject to, as evidenced by the Shell ruling to stop Shell’s seismic exploration survey at the Wild Coast. ESG is a business necessity and should be considered in company decision-making.
Shell judgment
The Shell judgement is part of a series that includes significant decisions both at home and abroad, such the XolobeniSouth Africa, Eastern Cape OkpabiNigerian Niger Delta. Mineral Commodities Ltd, an Australian mining company, expressed interest in mining titanium ore. The community of Xolobeni opposed the proposed mining activities for over 15 years. In September 2020 the Pretoria High Court ruled that communities have a right and obligation to view application licences.
This case showed that both communities and mining companies must be considered. Importantly, the judgment ruled that all parties interested and affected should be included within the consultation process. It must be transparent, fair, and fair. It is essential that all information about mining projects that have an impact on communities be made available to the public for their knowledge and interest.
Okpabi case
The Okpabi caseMore than 40 000 Nigerians from two areas of the Niger Delta affected filed a lawsuit against Royal Dutch Shell and one of its Nigerian subsidiaries, Shell Petroleum Development Company of Nigeria (RDS), for oil spillages and pollution caused by pipelines that were operated by the subsidiary.
The case was brought before the UK supreme Court to hold RDS, the parent company, directly responsible for the actions of its subsidiary, the Niger Delta. The oil spillages and water contamination caused significant environmental damage that made it unsafe for drinking, fishing, and recreation.
The UK supreme court ruled in this regard that RDS, the parent company, owed duty to Nigerian citizens regarding environmental damage and human rights violations by its Nigerian subsidiary. RDS was ordered in order to pay an undisclosed amount the farmers who claimed the oil spillages had ruined their livelihoods due to the importance of the environmental damage.
This highlights the real danger of financial loss due to ineffective policy implementation, procedures and due diligence. Companies must be more proactive in their corporate governance and provide effective reporting. These significant risks can be managed by taking ESG performance seriously.
The Okpabi, Xolobeni, and Okpabi cases are examples of the prominence ESG factors are starting to gain in regulatory and risk space. The convergence of ESG criteria with legal frameworks is evidence that there is a substantive trend.business ESG integration: case This view is naturally subject to challenge.
Corporate greenwashing
Robert Armstrong, of the Financial Times, an ESG sceptic for many years, has BewareESG will become a new type of corporate greenwashing where companies are rewarded for their intention rather than their actions and even subverted to avoid regulation. Clear regulations on disclosures regarding ESG-related risk must be created in order for ESG legislation to be aligned. These regulations should be transparent and promote good corporate governance.
Tariq Fancy has done the same. ESG was criticizedESG investing and performance. He basically claims that ESG without legislation that sets clear boundaries for ESG performance can be dangerously distracting from the real issues and a major danger to the economic system.
The current economic and global accounting system has, however, inadvertently permitted companies to offload negative externalities the divergence between private returns and social costs onto communities and ecosystems that can least afford it. It has also led to significant inequality and climate change. ESG requirements that are correctly legislated allow the possibility to internalise the costs and manage the risks. This is a critical goal if we wish to maintain system stability.
The Shell case and its antecedents reveal some tensions between oil and minerals exploration companies, environmental groups and communities, as well as policy-makers. Some argue that the Preventing mineral explorationThis leads to a significant economic cost for developing countries that they cannot afford.
This is in line with comments made by Gwede Mantashe (South African Minister of Minerals and Energy), who suggested that protests by environmental groups are similar to Apartheid & colonialism. Similarly, Nigerian Vice-President Yemi Osinbajo has arguedIt is delusional to think that fossil fuel divestment programmes are real. Anabela Lemos and Nnimmo Basey have RespondedWith a critical critique of Osinbajos arguments, that have much to offer Mantashe as well.
Negative externalities
Access to affordable and consistent fuel sources is crucial for economic growth in the developing world. AccordinglyThese countries may feel unfairly forced to stop their development to address a climate crisis. They are minor contributors to it. Potential oil exploration off of the Wild Coast could be possible Take outThe country’s dependence upon imports of fuel would be reduced and the economy would be more resilient if oil was available at a sufficiently low marginal price and South Africa could make it into refined fuel.
The exploration of the mineral sands at Xolobeni could also help to boost the local economy. This is a crucial step in South Africa’s struggle for poverty and unemployment. However, there are negative externalities to exploration and production, including pollution and damage to ecosystems as well as the healthcare consequences for mineworkers. Additionally, it is important to weigh the opportunity costs of such investment decisions against their tourism-related alternatives. These alternatives may prove to be both less expensive and more environmentally friendly.
As stakeholders, communities must be included in the decision-making process. They will have to bear both the negative and positive spillovers of natural resource extraction. If Xolobeni, a community, has agreed that ecotourism is more valuable than mining the sands and is in compliance with all laws, they should have the right to stand firm in what they believe, without fear of intimidation, coercion, or coercion.
ESG performance presents an opportunity for such consultation and integration of these communities into decision-making processes as well as reducing the potential costs that might emerge down the line from litigation and fines.
These cases have shown that companies need to take above ground risks as seriously and consider all stakeholders when they do business. ESG risks must be managed and reported in a clearer way.
Busisipho Siyobi, the lead researcher for the Good Governance Africa natural resource governance program, and Vincent Obisie Orlu, a researcher in that same programme.