Six Ways Energy Companies Can Achieve ESG Targets
These targets are a top priority for many companies.
- By Julia Zakhari
- Apr 20, 2022
As the push to address climate change gains traction, Environmental, Sustainability and Governance (ESG) initiatives are becoming a top priority for companies with more than 529 ESG shareholder resolutions filed already this year. Some have even begun tying executive compensation to achieving ESG goals. In fact, the climate concern has become so urgent that in April 2020—at the height of the global pandemic—more than 70 percent of citizens across 14 countries felt it was its own crisis that needed an answer.
Driven by a combination of COP26 outcomes, net-zero carbon goals and public pressure, investors and consumers are empowered by “the transparency afforded to them in the digital age” to increasingly put their money where their values lie. As a result, ESG-focused investing now exceeds $30 trillion, skyrocketing 68 percent since 2014 and growing 10X since 2004, adding pressure for companies to tighten the ESG ship or risk going under.
The energy sector is far from immune to these demands. Over the last 20 years, companies have made important strides in cutting carbon emissions and reducing greenhouse gas emissions, and energy giant Chevron recently announced new climate and sustainability goals in October 2021.
For many, the biggest challenge is in collecting and reporting data, including ROI on their investments, along with developing a plan to achieve stated goals. For others it’s simply too difficult to quantify and make measurable progress.
By its very nature, the energy sector faces significant challenges in prioritizing environmental-related ESG when most of our fuels and electricity still come from carbon-based sources, even as renewables gain ground. As a result, many are still coming under fire for slow progress, despite having made major strides.
But climate isn’t the only ESG issue—human safety, purpose-driven business practices and fiscally sound management are also part of the equation. Consumers and investors expect the companies they do business with to do good by the planet, its people and their pocketbooks, demanding more than just feel-good statements.
According to a recent article from Deloitte, consumers are “looking for organizations to put purpose at the core of their operations, caring for the issues that concern their employees, communities, industries, and the world at large.”
Not to mention, there are real business benefits to an ESG strategy, too. ESG risk exposure erodes competitive advantage, while achieving ESG goals drives business value, lowers operating costs and helps companies tap into new markets and boosts productivity.
Energy companies need to balance business needs against shareholder pressure, and there are some surprisingly simple solutions. Here are six ways energy companies can achieve ESG goals that satisfy both investors and the public.
1. Reduce energy consumption. Lowering energy usage across facilities means less electricity production, which reduces environmental impact. But doing that while maintaining productivity in an industrial facility can be difficult—you can’t just shut down equipment to save on energy.
One of the fastest and easiest ways to slash energy use is to upgrade to modern LED lighting. Not only is LED lighting 80 percent more efficient than conventional lighting, which means lower energy use per fixture, it also offers better visibility with higher lumens per watt, which can mean fewer LED fixtures are needed to light the same area. It also requires fewer consumables—there are no bulbs to change out—which has the knock-on effect of reducing the energy required to produce standard fixtures and bulbs.
2. Use more sustainable energy sources. There’s been a tremendous push toward the adoption of renewable sources like wind and solar. For example, ExxonMobil has been expanding its investment in renewable diesel and the “big six” have invested billions into clean energy projects. While this is certainly a noble effort, it’s not entirely feasible in all situations or geographies, it’s not an immediate solution for total energy supply, and progress has been slow.
However, companies can employ renewable sources where it makes sense, for example, using wind and solar to power low-demand needs such as lighting, HVAC and more, which has a welcome side effect of helping to insulate from the volatility of oil and energy costs.
3. Reduce maintenance demand. Facility maintenance is resource intensive and dangerous for staff, especially if it requires working at heights to address overhead issues, like constantly changing light bulbs. It also requires special equipment and extra energy, and often requires shutting down production.
Investing in better performing, longer-life products reduce maintenance cycles, keeping employees out of harm’s way, and lowers resource demand and costs, freeing up funds for more mission-driven investment. By investing in more robust, industrial-grade equipment that’s built for harsh and hazardous applications, companies can drastically reduce the time and resources spent on maintenance, along with the waste (both hazardous and non-hazardous) involved in disposing of spent parts.
4. Emphasize safety. The humanitarian aspect of ESG means creating safer, healthier work environments for people, both within primary facilities and across the supply chain. Just as reducing pollution protects our planet’s wellbeing, reducing the risk of accidents and injuries protects the wellbeing of our people.
Slip, trip and fall accidents and contact with objects and equipment are some of the most common nonfatal work injuries that result in time off work. Reducing this risk can be as simple as upgrading facility lighting and focusing on overall improved visibility. Adequate lighting has proven to reduce the risk and prevalence of accidents and injury, and even minimize fatigue which can aid productivity. It also makes for a more invigorating environment that keeps staff engaged and responsive to safety risks.
5. Focus on metrics that matter. Consumers nor investors have time for projections and estimates—they want real, measurable proof. For a long time, ESG metrics have been hard to quantify, but the industry is rapidly moving toward globally standardized metrics and disclosure requirements. But investors are pressing for assurance—97 percent feel sustainability disclosures should be audited to prove credibility and reliability, and two out of three said those audits should be as rigorous as financial audits.
Deploying measurable solutions allows companies to prove the impact of their ESG efforts with both quantitative and qualitative data. For example, start by focusing on metrics like energy consumption, water management, greenhouse gas emissions and safety performance data, including data from across your supply chain. Next, address social impacts like community relations, workforce and leadership diversity and employee health and wellbeing.
6. Operationalize ESG at all levels. There’s been a tremendous boom in hiring ESG talent over the last few years, but merely hiring a director to oversee the program isn’t nearly enough. One of the biggest mistakes companies have made in striving for ESG success is failure to operationalize those goals across the company.
Fortunately, that tide is turning as organizations embed ESG resources within departments across the company. Today, nearly a third of organizations have a dedicated sustainability resource embedded within their facilities department. And as more companies prove the benefit of doing so, we can expect to see ESG further permeate the culture and operations.
Now is the Time to Take Action
By all accounts, 2022 will be the year of ESG with more pressure than ever on companies to set and meet objectives. And as pressure mounts, the penalties for not making satisfactory progress have become increasingly severe. The reality is that companies that hesitate to make ESG a priority risk losing their opportunity to establish themselves as leaders and jeopardize their ability to remain competitive, attract investors and employees and, ultimately, survive in the long term.
With inflation on the rise and costs going up, some companies may be hesitant to invest in solutions to meet ESG goals. But with demand for these technologies only increasing as more organizations catch on, energy companies must act now to get ahead of mandates or it may cost more in the end, both in terms of capital expenditure and loss of competitive advantage.