As we approach the annual cycle of the positing of decommissioning security (guarantees) in support of obligations under Decommissioning Security Agreements (DSA’s), our Head of Surety Sally Hinchey talks ESG in the surety market.
The oil and gas industry has increasingly looked to the surety market to provide capacity in support of onshore and offshore decommissioning obligations. Where the DSA permits, insurance companies that meet the rating requirements can issue surety bonds on behalf of the operator, which guarantees the operator’s obligations under the DSA.
Following in the footsteps of the insurance industry, the surety market is expected to play a critical part in the global transition to a greener economy. As a result, we are increasingly seeing environmental, social and governance (ESG) factors being introduced into the underwriting process.
Whilst market appetite and capacity remains positive for surety bonds within the oil and gas sector, understanding the surety’s position on ESG will be key when building your surety programme and securing capacity during this year’s renewal. Questions to ask:
- Does the surety consider decommissioning as ESG positive or ESG negative?
- What limitations are there, if any, on capacity?
- How will the above impact your business strategy when navigating upcoming security requirements and sourcing support from the surety market?
Securing capacity from the surety market provides an alternative line of credit, therefore freeing up valuable banking lines. At a time where financial institutions are also coming under increasing pressure regarding ESG, it could be an opportune time to review and consider your strategy to support your upcoming security posting requirements, and how surety can play a part in supporting those requirements.
With no two markets approaching ESG in exactly the same way, and many treating accounts on a case-by-case basis, working with a specialist broker to navigate the surety market and facilitate these discussions can both speed up and smooth the process.