This document discusses a proposed study on sustainability accounting practices and human capital reporting within the Malaysian oil and gas industry. It provides background on increasing pressure for organizations to report on environmental and social impacts. The study aims to assess how accurately and timely Malaysian oil and gas companies record human capital impacts in sustainability reports, in order to encourage planned versus unplanned redundancies. It presents hypotheses around the relationships between human capital reporting, sustainability reporting practices, and redundancy outcomes. The proposed methodology is a regression analysis of 200 oil and gas companies using data from sustainability reports and financial statements from 1988-2014. The significance is that accurate, timely human capital reporting in sustainability reports could help companies better plan for downturns and reduce unplanned layoffs.

1. Sustainability Accounting Practices within the Malaysian
Oil and Gas Industry amidst Volatility: The Human
Capital Factor
DayanaMasturaBaharudin

2. Abstract
• Over the past 20 years, there has been
increasing pressure placed on organisations by
various stakeholders to measure and manage
their impacts on the environment and society,
and communicate this publicly. Sustainability
reporting can add value in a number of ways,
including increased resource efficiency,
reduced supply chain risks, higher levels of
employee retention and reduced cost of
capital.

3. Introduction
• On 16 April 2013, the European Commission proposed
new requirements for disclosure of non-financial
information for all large companies in the European Union.
Investors, being a key audience of corporate reporting, are
increasingly looking to assess not just the financial
performance of the companies, in which they invest, but
also the environmental, social and governance (ESG)
performance.
• Organisations tend to communicate their sustainability
activities through sustainability reports and currently over
3,000 companies worldwide, including over two-thirds of
the Fortune Global 500, issue annual reports on
sustainability and corporate responsibility. The pool of
companies reporting is global, and represents all sectors
and industries. The quality of reporting varies significantly

4. Problem Statement
• Oil and gas companies are not seen to be planning
for their human capital in terms of long term
survival or sustainability.
• This is portrayed through the vicious cycles which
has repeatedly made tens of thousands of
employees redundant every couple of years and
seem not to be perturbed or rocked by the
downturn in the economic cycle within the oil and
gas industry.
• Without an accurate and timely sustainability plan
and reporting in place it could adversely affect the
future survival of an organisation and consequently
the oil and gas industry as a whole.

5. Research Objectives
• 1. To assess the accuracy and timeliness of the recording of human
capital in sustainability reports to encourage planned human capital
redundancies.
• 2. To ascertain if organisations produce accurate and timely
sustainability reports on a yearly basis in order to avoid unplanned
human capital redundancies.
• 3. To identify if organisations are giving their employees hands-on
training to prepare accurate and timely sustainability reports.
• 4. To ascertain if organisations are providing their employees with
educational support to prepare sustainability reports to encourage
planned and avoid unplanned redundancies.
• 5. To determine if organisations are using an automated integrated
database systems to record human capital inflow or outflow to produce
sustainability reports in order to promote planned and avoid
unplanned human capital redundancies.

6. Research Questions
• 1. Are human capital measured accurately and timely in the
organisation’s sustainability reports to encourage planned human
capital redundancies?
• 2. Are companies making an effort to produce accurate and timely,
yearly sustainability reports to avoid unplanned human capital
redundancies?
• 3. Does hands-on training moderate the relationship between human
capitals reporting within the sustainability reports to encourage
planned and avoid unplanned redundancies?
• 4. Does education moderates the relationship between human capital
reporting within the sustainability reports in order to promote planned
and avoid unplanned redundancies?
• 5. Does the automated integrated database system moderates the
relationship between human capitals reporting to prepare timely
sustainability reports in order to promote planned and avoids
unplanned redundancies?

7. Literature Review
- Sustainability
• Sustainability as defined by the World
Commission on Environment and
Development is ‘meeting the needs of the
present without compromising the ability of
future generations to meet their own
needs’.
• GRI was launched in 1997 by the Coalition
for Environmentally Responsible Economies
(CERES). The founders, mostly shareholders
wanted companies to report on their
environmental, social, and governance
activities in a methodical, comprehensive,
and consistent way common to all
companies, so that shareholders could
compare company sustainability efforts,
just as they can with revenues or profits.
• The GRI framework used by 5,000
companies worldwide, has six main
categories for disclosing a company’s
sustainability profile - environmental,
human rights, labour practices, society,
product responsibility and economic
performance with subcategories to ensure
comprehensive reporting.

8. Literature Review - Volatility

9. Proposed Conceptual Framework

10. Human Capital Uses and Effects
Reporting- Independent Variable
• The capitals represent stores of value that can be built up,
transformed or run down over time in the production of goods
and services. Their availability, quality and affordability can
affect the long term viability of an organisation’s business model
and therefore its ability to create value over time. The capitals
must therefore be maintained if they are to continue to help
organisations create value in the future.
• Human capital consists of people’s competencies, capabilities
and experience, and their motivations to innovate. It also
reflects the alignment with and support for an organisation’s
governance framework and risk management. The presence of
human capital can enhance the ability to understand, develop
and implement and organisation’s strategy and as a mediator for
loyalties and motivations for improving processes, goods and
services, including the ability to lead, manage and collaborate.

11. Timely and accurate/ Non-reporting of
sustainability- Mediating Variables
Most companies communicate information about their sustainability
efforts to stakeholders, as part of advertisements, product
packaging, public relations announcements and promotion on
company websites; some may even publicize them on business
vehicles. In addition, formal reporting has increased significantly,
especially among larger organisations.

12. Planned or Unplanned Human Capital
Redundancies- Dependent Variable
• Job cuts are inevitable as oil and gas companies watch commodity prices
tumble, but layoffs today could have significant ramifications for the sector
tomorrow. For a variety of reasons specific to the industry, energy companies
could find themselves in a situation later where skilled workers are hard to
replace .
• Too many layoffs will raise another concern which is the crew change in
which the oil industry employs a lot of entry-level workers and veterans with
25 years of experience or more but midcareer professionals are in short
supply, leaving few candidates to replace the seasoned pros.
• The shortage goes back to the 1980s oil bust after which hiring came to a
standstill and many workers either left the industry or discourages their
children from entering the field. During that period, a number of colleges
either scaled back or dropped petroleum engineering programs. There are
very few people who entered the oil and gas industry from 1984 to 1999 in
which resulted in no new talent added within that period of time.
• As the older workforce retires, the oil companies might find it hard to bridge
the talent and knowledge gap. Companies that make significant cuts may also
have to pay a premium to rehire workers when oil prices recover as envisaged
by the E&P research department of Tudor Pickering Holt.
• Oil companies should be very careful in reducing staff as they have seen
cycles like this before where commodity prices are weak for a certain period
of time which forced them to lay off employees and eventually the need to re
hire the right talent after prices go up which was challenging as former
employees are afraid to enter the industry again

13. Hands-on training/Education/Integrated Systems-
Moderating Variables
The guidance provided by the IPIECA represents the oil and gas
industry consensus on the most prevalent sustainability issues and
indicators, and aims to support continuous improvement of
sustainability reporting and performance across sector.
Additionally the GRI Oil and Gas Sector Disclosures are for the use of
companies and organisations primarily involved in the exploration,
extraction, production, refining, and transport and sale of oil, gas
and petrochemicals. Their operations span the complete life cycle of
projects from development through operational lifetime to
decommissioning, closure and post closure. The sector is diverse
with some companies that specialize exclusively in one part of the
cycle such as exploration or construction, and large government-
owned, multinational or vertically-integrated companies

14. • H1: The uses and effects of human capitals which are
reported within a sustainability report will produce accurate
sustainability reporting and results in planned human capital
redundancies or outflow.
• H2: The non-reporting of the uses and effects of human
capital in an accurate and timely manner will lead in non-
reporting of sustainability measures or the absence of
sustainability reports which leads to companies taking
unplanned human capital redundancies in times of crisis.
• H3: Employees hands-on training moderates the relationship
between recording of the uses and effects of human capital
and the timely and accurate sustainability reporting to
encourage planned and avoid unplanned redundancies.
• H4: Education on global best practice sustainability reporting
moderates the relationship between recording or non-
recording of human capital to prepare timely and accurate
sustainability reports in order to promote planned and avoid
unplanned redundancies.
• H5: Integrated system of reporting resources within an
organisation moderates the relationship between recording
of the uses and effects of human capital and the timely and
accurate sustainability reporting to encourage planned and
avoid unplanned redundancies.
•
Proposed hypotheses
of the study

15. Scope and methodology
• The sample of the study will examine oil and gas companies
which publish sustainability reports yet still make unplanned
human capital redundancies in times of crisis.
• The proposed study on secondary data will be extracted from
annual reports of Malaysian listed companies from Bursa
Malaysia, and private limited companies data will be extracted
from the financial statements filed under the Companies
Commission of Malaysia.
• The above mentioned data will be gathered from 1988 to 2014.
The paper proposes a random sample of 200 companies
combined between the private and public limited companies
operating within the upstream sector of the Malaysian oil and gas
industry and will be obtained from the registered companies
under the Malaysian Oil and Gas Services Council (MOGSEC).
• This paper proposed a regression analysis methodology for
analysis.

16. Significance of study
• The findings of the proposed study will be useful to the
oil and gas industry as it allows the industry to prepare
accurate and timely sustainability reports for
stakeholders decision making be it internal or external
stakeholders.
• The beneficiaries of the proposed study include
employees, accounts and annual report preparers who
are also stakeholders.
• The contribution of the proposed study the oil and gas
industry includes reaching a level where unplanned
redundancies are not seen as a trend which affects the
reputation of the industry as a whole. Consequently this
will ultimately benefit the society and country where
planned redundancies will reduce the unemployment
and crime rate.

17. Conclusions and recommendations
Anticipated Research Findings
• Companies that produce human capital figures and analyses within their
sustainability reports are sustainable companies in the long run as they are able to
plan to combat against any adverse situations in the future.
Recommendations
PwC Malaysia has suggested three operational strategies for success in a tough oil and
gas market in which the first strategy is to maximize the use of supply and demand
information which will encourage better purchasing economies from volume pooling,
reduction in redundant capital expenditure and encourages more accurate forecasting
of future performance.
The second strategy is to procure strategically by the numbers which can lead to lower
supplier management costs by consolidating vendors, better realisation of previously
negotiated volume discounts and reduction in purchase price variances paid to
suppliers.
The third and final strategy is to resist temptation to retreat into departmental silos in
which truly effective efforts at reducing the cost of procured items, or improving
delivery lead times, require both effective supplier management and consultation with
customer-facing teams to understand areas where trade-offs may be possible