Within the Energy and Natural Resources sector, the number and variety of Sustainability and ESG issues are vast, and vary depending on geographical location and the specific asset. The risks themselves are also dynamic and non-linear making them challenging to identify and address, unless you view them through an integrated sector lens.
Our Sustainability and ESG team within the ENR sector is well versed in these complexities and work with our subject matter experts to advise clients in areas such as climate change, corporate PPAs, sustainable finance, as well as international business and human rights. All of this is through the lens of the client's sector as risks and issues vary vastly depending on the specific context of a business operations.
With the climate emergency declared in over 30 countries and many large jurisdictions, including Sweden, UK, France, Denmark and New Zealand have legislated net-zero targets. This places renewable energy solutions in high demand as a key sector supporting the transition to a net-zero economy.
However, even renewable energy can be unsustainable if it does not integrate adequately ESG factors. Aspects such as supply chain management, data security, human rights and material sourcing, to name a few, also need to be strongly considered.
As mentioned above, there are a number of sustainability factors that need to be considered and climate change issues are only part of the story. The supply chain involved in areas such as solar farms is complex, with many panels developed in countries such as China before being shipped to the solar park destination. But is this the most effective route? When building a wind farm in a remote location, what health and safety and labour practices need to be considered? A recycling plant is a great initiative, but is it sustainable if the waste trucks run on diesel fuel and the drivers are paid below the minimum wage?
The sustainability lens is an essential element when reviewing all projects, and this does not change simply because the project itself is part of the net-zero transition.
Oil and Gas
The energy transition is a pathway towards the transformation of the global energy sector form fossil-based to net-zero greenhouse gas emissions by 2050. We are witnessing major integrated oil and gas companies committing to aligning their portfolios with the Paris Agreement goals, with all major O&G companies investing more and more in their renewable energy offerings. But being sustainable means reviewing all parts of the business, including health and safety issues on rigs, product design to ensure the safe and effective transportation of substances at all stages of the process, and clearly mitigating risk and general risk management are areas O&G companies are focused on.
When we advise O&G companies on sustainability issues, their production of renewable energy is a benefit but by no means a major element of their approach to sustainability.
For the mining sector, transitioning to net-zero emissions is also a key element. This includes not only its operations but the indirect emissions that occur in the value chain of the organisation, including both upstream and downstream emissions. As such organisations will need to enhance their collaboration with their customers to become resource efficient, reuse and recycle high energy intensity products such as steel and aluminium.
Given the needs for new technology components and storage of energy the mining sector is experiencing a shift in demand for key minerals. This also comes with environmental and social impacts that need to be mitigated and manage adequately. Human rights and local community, engagement are key elements of sustainability for the entire ENR sector.
Shifting investor and consumer expectations are also a key driver. Investors are increasingly requiring reporting and transparency regarding an organisations material ESG factors, how these are integrated into the organisations governance, strategy, risk management, metrics and targets. Access to and the cost of capital are increasingly linked to ESG performance and impacts.
In light of the climate‑related impacts water is one of the sectors that is clearly physically impacted. Building resilience and providing for water security are key priorities. Efficiency and water footprint of products and goods will increase in prominence as climate perils and chronic impacts of climates increase.
Water pumping and distribution also generates significant emissions. Using renewable energy for such operations will also become an important aspect in the water sector. Payment for ecosystem services and nature base solutions are policies that are gaining traction in large jurisdictions such as the EU, which help protect watersheds and secure access and supply.
In addition to environmental-related factors across ENR sector, social and governance elements are also key drivers of success. How workers are protected and local communities included are fundamental, but also aspects such as linking executive remuneration to delivering ESG targets demonstrates integration and prioritisation of material risk and opportunities.
To discuss these issues in more detail please get in touch with our sustainability leaders