In the growing area of Environmental, Social and Governance (ESG), every energy company, right or wrong, good or bad, seems to get lumped in as uncaring about the environment at best, or pegged as environmental offenders at worst. Little thought, however, is given to the fact that energy companies are best positioned to lead the efforts of incorporating the “E” in ESG, through sustainability and renewable energy solutions into their existing energy infrastructure and value chains.
Private and public investors are absolutely needed to provide capital (i.e. the fuel) for ESG-related investments in renewable energy. Naturally, companies like Google and Microsoft will garner a lot of attention for news of their plans to become carbon neutral or carbon net negative. Their capital and their market leadership are critical. But, who is providing the solar power for their future data centers? How is that power getting to the grid? The investments are going to the solar and wind farm energy companies, and that renewable energy is getting fed to the grid via power utilities.
The fact is that renewable energy must come from emerging and existing energy companies and it’s these companies that have the operational know-how to get the wind and solar energy to the grid efficiently, effectively and safely. Houston, the Energy Capital of the World, has construction in progress all over the city (and what seems like every freeway), and I’ve yet to see one electric tow truck. It’s also a fact that the transportation industry will be transitioning off fossil fuels towards cleaner-burning fuels and biofuels, and electric vehicles (sourced from cleaner burning natural gas) for a long time to come. Energy companies will be building and expanding bio-ethanol plants and co-generation facilities to meet increasing demand for renewable energy.
With ESG here, and on the minds of boardroom executives in every industry, especially those in energy company boardrooms, what should they be doing? With a focus on the “E” in ESG, here’s what they are, and should, be doing:
- Develop, publish and execute an ESG strategy that covers sustainability programs geared for the three Rs (“3R”) – Renewal, Recovery and Removal
- Renewal means to outline a transition towards sourcing more renewable energy
- Recovery means to address improvements in energy efficiency
- Removal means to control and reduce greenhouse gas emissions (GHGs)
- Setup organizational business line(s) for sustainability and renewables or operational and non-operational
- Sustainability lines should manage non-operational 3R programs
- Renewable lines should own the operational value chain and implement 3R plans
- Govern sustainability and renewable programs for reporting and audit
- Assess, measure, track, report and repeat
- Prepare for board reviews, internal audits and eventual external ESG audits
Many larger, public energy companies are at the forefront and are already underway with ESG strategies, implementation plans and initiatives. Along with regulatory requirements, market-driven forces will also continue to increase as ESG investment strategies will allocate more and more capital for companies committed to sustainable practices. Smaller public and private companies will need to follow suit.
It’s well-know the energy industry is historically slow to react to changing times, but ESG is no longer “around the corner”—it’s here and here to stay.
These are the more external, public-facing actions that energy companies need to get started doing. In Part 2, I’ll discuss what energy companies need to be doing behind-the-scenes to get ready for expanding ESG requirements and prepare for future business complexity.
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