What does a comprehensive ESG programme look like; identifying the possible range of initiatives that work for your business.
Published 11 June 2021
by David Stent, Content Manager, Energy Council
In this day and age, a company has broader expectations beyond the capital returns to shareholders. There is now the belief that a company should act in the best interests of all stakeholders, seeking to be positively transformative or, at least, seek to mitigate any negative impact of a company’s actions. And while these impacts often arise unexpectedly, it is possible to have proactive policies that will anticipate possible structural barriers to progress. Ultimately, this is the goal of ESG reporting – to acknowledge and own the impact of a company on society and the atmosphere.
Within the energy industry these pressures are far more pronounced than elsewhere, with the environmental concerns needing to be addressed at breakneck speeds. These concerns are interlinked to the social and corporate governance of a company.
To start; a business needs to identify and establish where and how their ESG-related weaknesses manifest. Once these weaknesses are established, a company should then identify, develop and utilize a strong ESG reporting framework, one that can challenge the business to improve their impact on society. Finally, the company needs to act decisively and boldly reform their business models to become increasingly sustainable over time.
The “Environmental” – Easing pressures on the air, land and water
Defining a company’s environmental credentials has in recent years been established along the concept of Scope 1, 2 and 3 emissions, and the level of ownership an industrial emitter should be responsible for – given the pervasive demand for these products and services.
- Scope 1 are “direct greenhouse (GHG) emissions that occur from sources that are controlled or owned by an organization (e.g., emissions associated with fuel combustion in boilers, furnaces, vehicles)”.
- Scope 2 are the “indirect GHG emissions associated with the purchase of electricity, steam, heat, or cooling.”
- Scope 3 includes, “All Other Indirect Emissions from activities of the organisation, occurring from sources that they do not own or control. These are usually the greatest share of the carbon footprint, covering emissions associated with business travel, procurement, waste and water.”
A company’s impact on the environment should be considered through several lenses; firstly, is to where the emissions arise and how can they may be immediately lowered (Scope 1). This should inform the strategy toward the most immediate needs. Secondly, consider a future outlook in which emissions can be lowered consistently until a breakeven point is reached in conjunction with carbon offset initiatives (Scope 2). Thirdly, to act and restructure the company to accomplish these goals.
Building an environmental strategy that can deal with the pressing concerns and plan for the future is key, especially within the energy industry. Carbon offsets – projects such as reforestation, rewilding, carbon capture or carbon trading – do not solve the problem, although they could alleviate the pressures on a emissions intensive company. If the goal is “Net-Zero” emissions, any offset initiative would need to be massive to mitigate the emissions of fossil fuel production. Therefore, actively reducing one’s own emissions impact is crucial to enjoying a strong ESG-rating and doing one’s part to facilitate the energy transition.
Beyond emissions, a company should consider their use of land and impacts on surrounding nature, the use of water (a highly contentious topic for gas fracking producers), and the range of pollutants that may leak into the air.
Social – Embedding diversity & inclusion into company culture
As the social impact of a business has become more pronounced, the data has revealed that more diverse and inclusive workplaces end-up being more profitable. So while the mitigation of emissions costs may inhibit growth, in a positive trade-off the implementation of a diverse labour force will encourage growth.
Once more, identifying the status quo is the first step. The energy industry has notably been a significantly more male-dominated than other industries, however this is more prevalent in the conventional-side than renewables. Developing a greater share of women in the workforce is an easy and obvious route to encouraging diversity. Beyond this, seeking to engage with the training and development of local labour forces creates a direct route to competent workers that understand internal processes.
This should not be seen as tokenistic either; there will always be highly capable women and/or local labour that can successfully carry-out the roles expected of them. The dearth of talent coming into the traditional energy sector means companies need to build out that capacity.
While more progressive ideals, such as; wage gap reporting, diversity reporting or reparations for past injustices have seen a rise in popularity in some corners.
Governance – Guiding a company to Sustainable Success
The oft forgotten aspect of the ESG ideal is the framework looking at improving corporate governance measures. By building a company culture wherein there is accountability for the risks undertaken by a business. Management should again seek to identify where they and their employees have misgivings or points of pride about the state and structure of the corporate environment.
These issues could include the; level of tax contributions, the costs of employment and the benefits to employee, where research and development costs are spent, remuneration to management and shareholders. In an ESG-perfect world, the average employee may have a say in how their bosses are rewarded.
Once these concerns are identified, a collaborative effort with a diverse range of stakeholders (beyond the typical management teams) should assess and develop a strategy for the company that integrates stronger internal accountability measures into place.
Such measures will govern both the environmental and social policies too, the governance side is responsible for ensuring that the company undertakes ESG compliance in a holistic and sustainable manner. One that can maintain growth, build a happy labour force and hopefully, assist in keeping earth from heating above 1.5⁰C.