Valuing wellbeing

29th September 2016

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Andrew Bunn

The oil and gas sector should take an ecosystem services approach to environmental and social impact assessments, says Petrina Rowcroft

From using water for extraction and processing to timber for construction, the oil and gas sector depends on natural capital assets. Although the environmental impacts of exploration and extraction can be great, many organisations have made substantial progress in recent years to become more responsible.

Given the many benefits – or ecosystem services – that nature provides, oil and gas companies must also factor in their environmental impacts on wider human wellbeing, particularly that of the local communities with which they may be sharing critical resources. Taking an ecosystem services approach to environmental and social impact assessments can help companies better understand the knock-on effects of their ecological footprint on people’s lives.

Ecosystem principles

Specific ecosystem services are essential for health and wellbeing. Clearing a forest in Africa, for example, to make way for essential infrastructure might affect local people who rely on its products for food and shelter. Understanding the link between the environment and human wellbeing is an important step towards reducing potential negative impacts of oil and gas operations on the critical ecosystem services and local communities on which they depend.

Oil and gas companies are also under increasing pressure to demonstrate effective management of societal risk when seeking funding for projects, in itself further strengthening the case for taking an ecosystem services approach. Four years ago the International Finance Corporation (IFC) published eight performance standards clients must meet to secure investment. Performance standard 6 – biodiversity conservation and sustainable management of living natural resources – requires all the schemes the IFC funds to ‘maintain the benefits of ecosystem services’.

In addition, more than 80 other financial institutions in 35 countries have officially adopted the Equator Principles, a risk management framework for ‘determining, assessing and managing environment and social risk in projects’. The principles are applied globally and cover all industry sectors, so oil and gas companies need to comply with a minimum standard for due diligence when applying for funding from most financial institutions. Since many big developers rely on external funding to finance projects, they are facing increasingly stringent rules and regulations to reduce their impacts on human wellbeing. Taking an ecosystem services approach would help them systematically identify risks and impacts for which effective mitigation measures may be put in place to secure the funding.

At the same time, oil and gas firms are under pressure from regulators to consider how their environmental impacts might affect human wellbeing. Operators that fail to anticipate regulatory changes could incur costs and delays down the line. Further, the social licence to operate (SLO) is becoming more critical, with many governments unlikely to grant operational licences if a company is unable to demonstrate it has secured one.

Licence to operate

SLO – the level of acceptance for a scheme granted by local communities and other stakeholders – requires companies to gain buy-in from the people who could be affected by their operations. A big part of the ecosystem services approach involves speaking to and listening to local communities, which can help organisations address important issues and thereby gain their SLO.

A further benefit is reputation. Increasingly, governments, organisations and, importantly, consumers are holding big companies to account for their impact on the environment. A perceived lack of credibility and reliability can make it difficult for a company to operate in a particular area and can even affect its market share.

Ultimately, the opinions of those affected by oil and gas operations matter, so companies must show a genuine commitment to reducing their impacts on human wellbeing.

Discussions with local communities to better understand how they interact with the environment and which ecosystem services are most important to their wellbeing are key. There will often be a range of stakeholders that benefit from ecosystem services, so quantifying every impact can take time. From subsistence farmers growing crops on private land to the commercial fishing industry, each group that could be affected by a project will need to be considered.

Less tangible impacts, such as the loss of cultural significance when a forest is cut down, is harder to measure. But building open and honest relationships with local communities would allow companies to explore trade-offs with them, such as how much they value employment opportunities and income from an oil and gas development in contrast with the potential impact on particular ecosystem services.

With the growing global demand for oil and gas pushing exploration into ever more remote and developing regions where livelihoods are also often more dependent on natural resources, companies that interact positively with local communities will be more likely to gain acceptance for their operations.

A case in point

AECOM recently worked with an oil and gas company to help it understand how its activities in West Africa may affect the ecosystem services on which people in the region rely. The project required the clearing of large areas of mangroves, which sustained fishing activities that supported the livelihoods of many coastal communities, protected vulnerable coastlines from erosion and storms, and provided a valuable source of wood for housing and fuel.

By engaging local communities, it became clear that removing the mangroves could have far-reaching effects on people’s lives. The mangroves provided a nursery for fisheries and fuel for smoking fish. They also provided flood protection and were used by local people for spiritual rituals. Since the investigations, the oil and gas firm has started developing livelihood restoration plans for the people most affected by the clearing work.

AECOM used its own scoping and scoring tool on the project, known as ESIVI – ecosystem services identification, valuation and integration (see panel, below). This allows the team to identify the ecosystem services relevant to projects in a range of environments, including forest, grassland, marine and coastal. The potential impacts on the ecosystem services are then scored, taking into account several factors. These include how much local communities, as well as the project itself, depend on particular ecosystem services, how resilient the services are to change, what options there are, and how accessible they are.

Identifying the ecosystem services that are important to local communities is a key first step, but recognising what the company itself needs from the environment can be vital for business-critical operations.

The oil and gas sector depends on large volumes of water, for example. But, with population growth, continuing economic development and the effects of a changing climate, demand on limited fresh water supplies and other natural resources is likely to intensify. Developing an understanding of how the availability of valuable ecosystem services, such as water, might change in the future can help companies mitigate these threats before they harm business operations.

The right assessment

Through ecosystem services assessments, companies can identify and characterise natural capital risks and devise and implement strategies to help maintain and protect the natural assets they need to continue operating. Because the oil and gas sector depends on natural capital to carry out day-to-day operations, this approach would not only help companies to maintain business continuity, but also to help protect their bottom lines.

Despite progress on understanding and measuring how oil and gas projects might affect the environments in which they operate, a shift in environmental and social risk thinking is still required. The undeniably strong link between the environment and human wellbeing needs to be better recognised, and an ecosystem services approach can be key to achieving this. For the oil and gas sector to account effectively for how it affects people’s lives and the natural resources on which they depend, companies must alter their approach to environmental and social impact assessments and incorporate often ‘hidden’ ecosystem services.

Given the external pressures on the sector to be more environmentally responsible, taking action now could be a significant advantage when inevitable regulatory changes come into force. But fundamentally, connecting the environment and human wellbeing will almost certainly help oil and gas businesses to contribute to a more sustainable future.

Ecosystem services assessment at AECOM

The consultancy’s in-house tool ESIVI – ecosystem services identification, valuation and integration – is used to help clients understand how their policy, plan, programme, project, investment or activity will affect the provision of ecosystem services.

Applying ESIVI involves identifying:

  • the ecosystem services relevant to the project;
  • the beneficiaries of the ecosystem services, such as local people or a business’s customers;
  • the value of the services to beneficiaries;
  • the impact of the project on the relevant ecosystem services and their beneficiaries;
  • any opportunities to enhance ecosystem service delivery; and
  • mitigation measures for any loss or deterioration in service provision to beneficiaries.

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