With the current intense focus on climate change and the path to net zero, I’m not surprised that a growing number of companies are stepping forward to deal with environmental risks that affect both their businesses and society as a whole. How? By reducing their energy and carbon emissions, investing billions in new technologies and increasing their use of renewable energy.
Companies — often encouraged by their employees, customers and investors — are paying attention to environmental, social and governance (ESG) activities. In fact, a growing number of US customers and investors are urging businesses to improve their ESG performance, which also includes areas such as cybersecurity, privacy, ethics, health and safety, and human capital management.
To achieve these ESG goals, companies need to establish a clear strategic narrative for stakeholders — one that’s supported by the right metrics and controls — while building trust in the process. Striving to achieve both purpose (the public good) and profit is clearly a challenge. Businesses that are pursuing a clear strategic objective for ESG are taking control of their future, and I believe companies that aren’t taking steps to support these activities risk pushback from investors, customers and employees, and may have to contend with regulatory issues as well.
Given the recent flood of capital into new investment products and sustained pressure from customers and employees, many boards and C-suites already have had in-depth discussions on ESG topics, and this focus has intensified in response to the Biden administration’s stance on the environment. This is the case with many oil and gas firms that are evolving into integrated energy companies.
For example, one global energy company already has an initiative to divest itself of high-carbon assets and invest in lower-carbon assets. Another large oil business announced that it is standing up a company that’s wholly focused on renewable energy, which it plans to grow significantly. And some midstream companies have set up their ESG and net zero plans to power their pipelines and compressor stations with solar power rather than conventional energy sources.
These predominantly fossil fuel companies are quickly becoming the pioneers of the energy transition. I believe we’re going to see a number of other old-school fossil fuel companies follow their lead in offering renewable energy and climate-friendly technology solutions.
Tech is key to the energy evolution
The ESG evolution is fueled by technology, which large energy companies have been using to drive innovation for years. In my judgment, those businesses have been making substantial investments in tech to drive change, efficiency and profitability.
Many energy companies already use technologies such as artificial intelligence (AI), machine learning (ML), the cloud, advanced analytics, the internet of things (IoT), big data, digital twins, drones and wearables. Common applications include tracking and managing emissions, choosing the right portfolio of assets, and uncovering renewable energies with the leading potential for longevity and sustainability to drive permanent change.
Other apps focus on human capital areas, such as hiring, retaining and/or training employees. For example, HR can use natural language processing (NLP) and analytics for recruiting and hiring to screen candidates. They also can use cloud-based training platforms, software as a service (SaaS) and virtual reality (VR) for remote training and development, as well as implementing digital twins for maintenance and field support applications. Essentially, companies can leverage technology to help enhance user flexibility and customization and to reduce the need for human intervention.
Enhancing the supply chain is one prominent use of machine learning and advanced analytics, while ML and AI are also used to determine the best placement of wells. Digital twins are helpful in designing energy projects, and wearables can be used for safety monitoring. Energy companies are also using technology to help identify environmental risks and to implement cybersecurity controls and processes.
These businesses don’t want to sink a lot of dollars into a technology that will likely have to be revamped in a few years. They want sustainable technologies that have the potential to make a long-term positive impact on their company. Of course, businesses may have to consider the cost of implementing new technologies, as well as the price of developing emerging energy sources.
Governments, along with investors, could play a big role by helping to fund some of these efforts. By being a partner to energy companies, governments and investors can help these endeavors succeed.
It's hard to ask private companies to invest billions of dollars in infrastructure — such as building nationwide stations to charge electric cars — if the demand isn't there. But governments could offer energy companies investment or production tax credits to build such stations, along with offering incentives to consumers to buy electric cars. If, for example, you want the general population to buy electric vehicles, you should make them affordable — and tax credits can help achieve that. Oil and gas firms that are evolving into energy companies also could benefit from government assistance, such as tax incentives.
In summary, to achieve business value and ESG goals, a company must manage both its social and fiscal responsibilities — and a growing number of companies are. These enterprises — often motivated by employees, customers and investors — have become ESG champions and pioneers in the energy transition.
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