More than 30 countries around the world have declared a state of climate emergency, with many jurisdictions, among them Sweden, the UK, France, Denmark and New Zealand, having legislated net-zero emissions targets. In face of the global response, this places the Energy and Natural Resources (ENR) sector front and center.
Sustainability and ESG (SESG) issues affect the ENR sector in profound ways, environmental-related factors are only part of the picture: social and governance elements are also increasingly being seen as key drivers of success. For some companies, protecting human rights, protecting a watershed, and considering long-term impacts on local communities are becoming crucial. Actions such as linking executive remuneration to delivery of SESG targets can also demonstrate company's commitment to SESG. The spectrum of issues is broad and depends on factors like the geographical location or the specific asset. The risks themselves are also dynamic and non-linear, introducing additional challenge in identifying and addressing them, unless they are viewed through an integrated sector lens.
Our Sustainability and ESG team within the ENR sector is well-versed in these complexities. We understand that each company's needs differ enormously, depending on sector, strategy and specific context. We can address those challenges and provide tailored advice in areas of sustainable finance, climate change, corporate PPAs, human rights, worker protections and community inclusion. We know that companies are seeking to demonstrate that they are incorporating SESG into their strategies and operations, and that they recognize the hazards and material risks which may arise from inadequate prioritization of SESG concerns.
Climate change places renewable energy solutions in high demand in the transition to a net-zero economy. However, for renewables companies climate change issues are only part of the story: even renewable energy can be unsustainable if it does not adequately integrate SESG factors. Aspects such as supply chain management, data security, human rights and materials sourcing, to name a few, need to be carefully considered. For instance, supply chain issues for solar projects are substantial: panels may be manufactured in another country, even in another hemisphere, and then shipped around the world to the solar park location. Similarly, developing wind farms often means constructing and maintaining facilities in remote locations, and therefore addressing health, safety and employment issues, in addition to environmental and supply chain concerns. 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? Throughout the lifecycle of a renewable energy project, there is too need to consider SESG aspects, be it in planning, developing, operating or decommissioning.
Oil and gas
The energy transition aims to transform the global energy sector from 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 transparent risk mitigation and management.
When we advise O&G companies on sustainability issues, generation of energy from renewable sources is a benefit, yet by no means the sole element of their approach to sustainability.
For the mining sector, transitioning to net-zero emissions is also a key element. Not only mining operations need to be taken into account, but also the indirect emissions that occur in the value chain, including both upstream and downstream emissions. In addition, businesses will need to improve their collaboration with customers to become resource efficient and to reuse and recycle energy-intense commodities and minerals, such as steel and copper.
Furthermore, the ever-growing demand for new technology components and energy storage solutions means that the mining sector is experiencing a shift in demand toward higher production of key minerals. This change comes hand in hand with environmental and social impacts that need to be mitigated and managed appropriately and transparently. As it is true across the entire energy sector, for mining, human rights and local community engagement are vital elements of sustainability.
Shifting investor and consumer expectations is also a key driver. Investors are increasingly calling for reporting and transparency requirements regarding a company's material ESG factors and how these are integrated into the company's governance, strategy, risk management, metrics and targets. Access to capital and the cost of capital are also being progressively linked to ESG performance and impacts.
Building water resilience and providing for water security are priorities around the world. A product's efficient use of water over its lifetime as well as the water footprint of its production are factors that will grow in prominence as water shortages, climate perils and chronic impacts of climate change increase.
Another aspect of industrial use of water arises from water pumping and distribution, each also generating significant levels of emissions while consuming water. Using renewable energy for such operations will become important for the water sector. Payment for ecosystem services and nature-based solutions (aiming to help protect watersheds and secure access and supply) are policies that are gaining traction in large jurisdictions such as the European Union.
To discuss the implications of these issues for your business, please contact our ESG leaders