The uptake of environmental, social and governance considerations across organisations is predicted to increase considerably over the next couple of years, as the importance of ESG continues to grow among investors, policymakers, and other key stakeholders. Several factors, such as the COVID-19 pandemic, Russia’s invasion of Ukraine, the climate crisis, millennial/consumer consciousness, backed up by increasing regulation and governmental support, are responsible for driving the ESG agenda forward.
There remains a strong emphasis on all three pillars of ESG, yet “E”, the environment, continues to be a priority. For example, the second annual ESG global survey from the Index Industry Association (IIA) found that 75% of survey respondents agreed that “environmental performance tends to only be focused on climate change and/or carbon footprint,” while 74% said that “most of our ESG portfolios are climate only.” This booming ESG trend, with a specific emphasis on the environment, is hugely relevant for the energy sector. It has introduced increasing pressure for energy companies to decarbonise and set emissions targets. Industry-wide environmental progression demonstrates that ESG (in tandem with technological advancements) has acted as a direct catalyst for the energy transition.
In saying this, whilst low carbon alternatives move to the forefront of the energy sector’s priorities, they reflect just one issue within the wider ESG landscape. Energy transition and ESG are often referenced in the same context, and corporate entities within the energy sector believe that the transition to a low-carbon business model implies that they have addressed their ESG requirements. However, this is not the case – ESG demands a balance between environmental, social and governance concerns, whereas the energy transition deals with a very specific set of criteria that fall under the environmental pillar.
There is a need to provide a more well-rounded ESG strategy that places equal focus on all three pillars even when addressing the issue of energy transition. This holistic approach to the energy transition is often captured by the “Just Transition” concept, aiming at ensuring that the substantial benefits of a green transition are non-exclusive and support those who stand to lose financially – be they countries and regions, or communities and workers.
If you would like to discuss how to build an ESG strategy that supports your company’s energy transition journey, then please contact Daphne Biliouri-Grant.