ESG For Net-zero Emissions Energy
Corporates in the energy sector have a major task cut out for them. As sustainability takes centerstage, there is an increasing expectation of companies to not only maximize investor value but also play a bigger role in society.
Being at the navel point of the climate change dialogue, energy sector companies need to broaden their environmental, social and governance (ESG) scope beyond the realm of old-school corporate social responsibility. Further increments and advances in energy production must neither negotiate with the planet nor with the most vulnerable sections of society. We have to find ways to produce more energy for our soaring population with least carbon.
According to a recent report by the United Nations’ Intergovernmental Panel on Climate Change, unless immediate, rapid and large-scale action is taken to reduce emissions, the average global temperature will likely exceed the 1.5-degree Celsius mark within 20 years. According to the World Wide Fund for Nature (WWF), humanity has used up all biological resources that our planet regenerates during the entire year by July 29, 2021. We are operating on ecological deficit spending.
Energy is our trump card against climate change. One of the most vulnerable countries to climate change, India lost about $87 billion in 2020 alone to natural disasters, as per World Meteorological Organization (WMO). Hence, there is a pressing need for rapid reductions in greenhouse gas emissions from commercial and industrial activity. While the government has set ambitious clean energy targets - 450 GW by 2030, businesses must make ESG yardsticks their license to operate. Business-as-usual approach will not work.
Conversely, evidence suggests that strong ESG credentials hold potential to boost companies’ bottom-line and access to capital as well. In the developed world, experience shows a positive correlation between financial and ESG performance. This can be attributed to savings achieved through reduced energy consumption, more efficient use of resources, lower chance of punitive regulatory outcome, and so on. Such savings can be channeled back into value creating segments and operations.
Without further ado, and without compromise, firms need to cascade ESG through their entire value chain. To keep up with and anticipate market developments, as influenced by extreme weather events, fluctuations in commodity prices, and technology disruptions, a comprehensive ESG framework encompassing actionable short-, medium- and long-term targets is vital.
While ESG encompasses a broad set of issues, it bodes well for companies to start by reducing their carbon footprint. This means shifting completely to clean electricity consumption, reducing waste generation, cutting pollution throughout the product life cycle, reducing their carbon dioxide equivalent emissions in society, or facilitating the adoption of cleaner transport, buildings, and industries.
These is a need to build consensus at various forums, create public policies and private benchmarks to push a transition that would not happen otherwise in a lasting way. Corporates with experience in the ESG sphere can be the torchbearers for those who are either evolving or starting afresh. This will also help the industry develop a sticky and quantifiable ESG metrics.
While quantitative data become more standardized, qualitative data such as energy consumption, resource utilization, carbon-neutrality plans can act as guides for investors to hold India Inc accountable for their actions toward a sustainable energy future.
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