Transparent Endings: Principles for Oil and Gas Companies Transferring Assets

When transferring a petroleum asset, but also when disengaging from a project more generally, transparency is a critical factor, and a cross-cutting issue.

In these principles, we’ve affirmed existing international standards such as OECD guidelines, the Extractive Industries Transparency Initiative, the UN Guiding Principles on Business and Human Rights and others that basically require that companies 1) contribute to addressing climate change, 2) manage their environmental and social responsibilities, and 3) disengage responsibly from the countries and the communities in which they operate—and part of that is providing transparency on the impacts of their assets transfers.

Those broad international normative standards should not be viewed as just voluntary, but as increasingly binding and increasingly necessary to comply with in order to protect against legal, regulatory, financial and reputational risk. Part of the guidance’s transparency principle is about being able to demonstrate compliance with the principles through disclosures of key provisions of the sales and purchase agreements, which address how the buyers and sellers are going to comply with the decommissioning obligations and ensure that there's adequate funding and also the buyer’s commitments with respect to emissions management, measurement, reporting and reduction.

Another key aspect is providing clarity on the role of asset transfers in the seller’s broader transition strategy. A key goal of these principles is to prevent the conflation of asset transfers with meaningful emissions reduction. So the goal here is to distinguish and show how  the transfer affects the seller’s absolute emissions, emissions intensity and progress towards emissions targets, building on existing standards such as the Greenhouse Gas Protocol, EDF and Ceres’ Climate Principles, and others.

A third very important component is providing clarity on how the buyer and seller are going to manage environmental and social impacts, the environmental and social liabilities that are attached to the asset that's being transferred, and how they will be managed after the transfer. This is a critical issue for ensuring social licence to operate and complying with existing international standards. This would include disclosing a list of the assets being transferred so that all stakeholders know what is included in the transfer, and what are the environmental and social liabilities that are attached to those assets. Also: disclosing the buyer’s commitments with respect to community development, local procurement, local employment and how they will be continued after the transfer based on what the seller was doing before, and how impacts will be minimized. There should also be transparency around the deployment of funds from the disposal of the asset and outcome of stakeholder consultation. It is an existing international standard requirement to consult with stakeholders when disengaging from an asset.

In the guidance we share some key issues for stakeholder engagement that we think are priorities based on the inputs we received from more than 100 consultees, but also our experience in working with a range of countries as NRGI and Carbon Tracker. This would include engaging with relevant stakeholders, like host governments at the national level (but also at the subnational level), Indigenous peoples, local communities, and civil society at large, on changes in government policy that may be required for host governments to implement their own climate strategies. This also includes engaging on changes in exploration and production contracts or domestic supply agreements that may be required as a result of government policy, but also commitments by the companies with respect to decommissioning and to limiting production. We also recommend engagement on ensuring that that local benefits are not reduced—looking at how to maintain community development arrangements; how to maintain employment; if there will be impacts on employment; whether there will be reskilling, upskilling, redeployment; and benefits for workers. It is also important that companies engage with their investors on specific asset transfers and on asset transfer policies in general.

There are more details in the principles, but one that I would highlight is ensuring consistency between lobbying and climate commitments and climate statements that companies make. This builds on standards such as the Global Standard on Corporate [Climate] Lobbying and it also applies to lobbying host governments. These should be aligned with the companies’ stated climate commitments.

And diversification opportunities. To the extent that a company is looking to diversify out of oil and gas, it would be beneficial to engage with relevant stakeholders on how the company can contribute to domestic diversification and clean energy provision [in host countries]. The goal is to engage to minimize decreases in local benefits and to promote sustainable development.