Assessment of environmental responsibility of oil and gas companies in Russia: the rating method

• The objective of the rating is to evaluate responsibility of oil & gas companies.
• The rating is based on indicators of environmental management, impact & transparency.
• Public companies with a focus on natural gas received top ratings.
• Transparency of subsidiaries is lower than that of parent corporations.

The article analyzes preconditions, specifics, and results of the first Russian environmental rating of oil and gas companies. The Russian oil and gas industry, strategically important for the national economy, is also environmentally unfriendly and opaque. Companies lack adequate motivation to follow best international environmental standards and practices for disclosure of information about their environmental performance and impacts. Environmental responsibility of the oil and gas sector has been subject to both public scrutiny and scientific discussions for many decades; however, these issues have been rarely (if ever) explored using a reliable and equitable tool which would provide for comparison between different companies. This article attempts to analyze the application of such a tool – environmental responsibility rating of oil and gas companies in Russia. The idea behind launching the rating was to provide end consumers and financial institutions an opportunity to compare the companies' products and services and to evaluate corporate risks (including reputation) on the basis of unbiased comparison and evaluation of the companies' environmental responsibility and their management's commitment. The rating's rationale is premised on the assumption that an environmental rating based on publicly available data and information could be accepted by companies' top management as a competitive advantage (or disadvantage) in obtaining access to better (cheaper and long-term) financial resources, and in improving market demand for their final value-added products. This study offers a complex analysis of qualitative and quantitative indicators of companies' activities in three fields: environmental management, environmental impact, and disclosure/transparency. The rating's results demonstrate that there are big differences among Russian oil and gas companies in their levels of environmental responsibility and transparency. Large, publicly-traded companies with a strategic focus on gas have received top ratings. Privately held, smaller oil companies are at the bottom, along with the subsidiaries of major Russian and international corporations (transparency of subsidiary companies tends to be lower than that of parent corporations). In some cases, a close relationship between the company's management and population of the surrounding region plays a positive role in promoting environmental responsibility. Assumptions for this environmental rating have been at least partially confirmed by the positive dynamics of the associated petroleum gas (APG) utilization level by oil and gas companies in Russia. This rating is based on novel and creative approach and has already contributed to forming average quantitative impact indicators in the industry. The assumptions and conclusions of this study can also be tested by comparing the first environmental rating of oil and gas companies' data with the data produced in the next rating.