Environmental, Social, and Governance (ESG) standards and regulatory frameworks in African countries are playing a pivotal role in shaping oil and gas investments across the continent.
These factors impact project costs, compliance requirements, and risk profiles, influencing investment decisions.
Seplat Energy’s Chief Financial Officer, Mrs Eleanor Adaralegbe, highlighted this during a panel discussion at the Africa Oil Week (AOW) Conference & Exhibition in Cape Town, South Africa.
Speaking on the theme, “ESG Investing: What strategies make African deals attractive in 2024?”, Adaralegbe emphasized that to ensure compliance and effectively manage ESG-related risks, companies must conduct comprehensive due diligence, adhere to international standards, engage with key stakeholders, implement solid policies, and maintain transparent reporting practices.
“ESG standards and regulatory frameworks in African countries significantly shape oil and gas investments. So, we need to take the right actions now. These actions not only mitigate risks but also create opportunities for enhanced stakeholder trust, improved financing options, and long-term project success,” the Seplat Energy CFO stressed.
According to her, investors assess potential projects by screening them against ESG benchmarks; of which projects that fail to meet minimum ESG standards are often excluded.
She said: “Comprehensive due diligence is conducted to identify ESG risks, including environmental impact, community relations, and governance practices. Investors may use frameworks like the Equator Principles or International Finance Corporation (IFC) Performance Standards. In this regard, Seplat Energy is ahead, proactively setting up to ensure readiness very much aligned with Strategy.
“Seplat Energy has shown commitment, which is driven from the top Board, special board committee on ESG matters, and sustainability management committee chaired by the CEO.”
Eleanor advocated the need for operators in the energy space to build a sustainable business through social development, focusing on environmental care and reporting as well as maximizing returns for shareholders. With a mission to deliver the energy transition in Nigeria through upstream, midstream and new energy pillars, she identified the roles of strong governance and HSE, as is the case with Seplat Energy’s operations in Nigeria.
Investors, she explained, are increasingly pushing for energy transition projects, such as natural gas developments that serve as a bridge to renewable energy; with also a growing interest in carbon offset initiatives linked to oil and gas operations, which could help mitigate climate impacts.
“ESG criteria are integrated into the investment process through rigorous screening, due diligence, and ongoing monitoring, with a focus on environmental impacts, social responsibility, and governance practices. Investors in African oil and gas projects are particularly concerned with climate impact, community relations, regulatory compliance, and transparency,” the Seplat CFO maintained.
She added: “ESG considerations significantly influence the structuring and valuation of oil and gas deals in Africa by affecting perceived risks, financing options, and project attractiveness. Strong ESG performance can lead to favourable financial terms and is key to the long-term viability of any business while poor ESG practices can result in reduced valuations, higher costs, and a limited pool of potential investors.
“ESG standards and regulatory frameworks in African countries significantly influence investments by shaping the operational requirements, risk profiles, and overall attractiveness of projects. Companies must navigate a complex landscape of varying regulations and expectations related to environmental protection, social development, and governance to ensure compliance while managing ESG-related risks effectively.”