ESG Energy Trends: From Transition to Transformation

ESG Energy Trends: From Transition to Transformation Global efforts to cut carbon emissions have put the energy sector under the microscope, and the pressure is on energy producers to stand out—in an effective way.

Investors, customers, employees, ratings agencies, and regulators are pushing energy companies to set environmental, social, and governance goals.

If you are an oil and gas company, utility, mining, or renewables firm, addressing key stakeholders’ interests in your environmental impacts, or the “E” in ESG, will be the crux of your ESG strategy.

Meanwhile, financial firms and consumer brands will factor in energy companies’ ESG goals when it comes to calculating their own greenhouse gas emissions, netzero commitments, and decarbonization and energy transition plans.

As you plan your ESG strategy, here are five energy-related trends to watch: 1. The great energy transition The Task Force on Climate-Related Financial Disclosures (TCFD) notes in its recommendations, followed by hundreds of organizations, that companies should consider the transition risks related to the policy, legal, and technological changes that will come with achieving a lower-carbon economy.

This may include substituting carbon-intensive sources of energy with alternatives, for example, or examining plans for extracting minerals to support renewable energy.

Fossil fuel-based companies and the transportation industry, which are among those facing the greatest transition risks, are identifying climate risks and opportunities now.

Assess what is material to your stakeholders, perform best-, base-, and worst-case scenario analyses of climate impacts, evaluate the potential hazards or benefits of pursuing strategies like carbon offsets, and determine how you will report and communicate your work to stakeholders.

2. Supply chain resiliency The pandemic and geopolitical backdrop have underscored the need for resilient supply chains. Supply networks must withstand not only disruptions but also shifts in priorities across global operations, whether that is driving energy efficiencies, cost-effectiveness, reliability, or a lower carbon footprint.

Collaboration is key to mapping supply chains, both for gathering information for ESG disclosures and identifying vulnerabilities.

3. Reinvention and renewables This is a pivotal moment for the energy industry.

Legacy oil, gas, and utility companies are reacting to volatility in commodities markets while proactively reinvigorating reputations with long-term strategies for a low-carbon future.

Sustainable finance decision-makers are evaluating capital allocation that takes a balanced approach to incorporating renewables and cleaner energy into business portfolios.

But not all energy producers are pursuing the same strategy or ditching fossil fuels.

Using investor-trusted data to drive your strategy will be critical to back your ESG narrative and share it with stakeholders. Having access to real-time ESG data collected from across your organization will help you stay agile as risk-and-reward payoffs change over time.

4. The link between ESG and the cost of capital Companies with higher ESG scores and ratings tend to have lower cost of capital, according to MSCI, the investment research firm.

They tend to have a lower cost of debt and less exposure to systematic risks, which suggests a lower cost of equity, according to MSCI. This is especially important as lenders issue loans with variable rates based on whether ESG goals are met or charge higher interest to companies with lower ESG rankings or ratings.

Energy companies have been at the forefront of ESG in looking for ways to mitigate risk, conserve resources, and reduce greenhouse gas emissions to reduce environmental impacts and deliver better returns.

This is especially important because some ESG ratings agencies and rankers may score you based on publicly available information, even if you did not create it.

5. Readiness for ESG reporting regulations Dress rehearsals for compliance with upcoming ESG mandates can help prepare you for when regulators adopt final rules.

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Review proposed rules, identify the data you are already collecting and what data you still need to collect for compliance, and map processes for reviewing, reporting, and assuring the data so you know where gaps exist.

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Start evaluating technology or ESG reporting software that can mitigate a lack of resources to collect data or create reports, so you can get back to the business of analysing progress and driving strategy.

ESG momentum The time for energy companies to prioritize ESG is now, some would say long overdue, while a well-articulated and measured strategy can still provide competitive differentiation.

Firms that lean into ESG will gain more credibility, as the risk of not measuring and reporting ESG as an energy company is higher than any other sector.

Contact Us: John Martin

Founder and Chief Executive Officer

PLUTUS CONSULTING GROUP LIMITED Birchin Lane, City of London, LONDON EC3V 9BW, UNITED KINGDOM t: +44 (0) 207 183 1464 (UK Office) t: +352 2033 1754 (Luxembourg Office) t: +41 446 880 190 (Switzerland Office) m: +44 (0)7773 774 917 e: john@plutusconsgroup.com www.plutusconsgroup.com