There are many terms circulating today regarding changes to how we power our lives. Are we experiencing a “transition” or an “evolution”? At Enverus, we see it as an evolution. The future of energy is an expanding mix of energy sources, not an elimination of them. From wood, water and oil, to wind and solar, we continue to pursue diverse sources of energy — and this isn’t anything new.
One thing is certain in the energy industry — change. Through emerging technology, data digitization or improved efficiencies, energy companies constantly adapt and evolve. Today, a new force affecting all industries, including energy, is emerging in response to shifting investor priorities — environmental, social and corporate governance (ESG).
These three factors are now commonly being used to measure a company’s societal impact. Investors are incorporating these new, non-financial metrics to help evaluate the long-term sustainability of a company’s cash flows and assess the risk of future regulatory changes and the ability to capture preferential sales of responsibly sourced goods and services.
For energy companies, responsible sourcing includes the various environmental impacts of the energy source in question. Because of the broad concerns related to greenhouse gas emissions, hydrocarbons come under the highest scrutiny today, but we believe over time that other energy sources will also be evaluated quantitatively for other environmental impacts. We are only at the beginning here.
Regardless of the energy source or audience, the challenges are data objectivity and visibility. Investors want, or need, to incorporate ESG parameters into their decision processes, but finding objective, decision-ready data is difficult. Likewise, businesses seeking to address their environmental impact and benchmark to peers are finding it hard to compile and analyze relevant analytics due to disparate data sources and a lack of standardization.
This difficulty is more than a bookkeeping annoyance. If businesses, for example, are unable to determine their CO2 footprint alongside their peers, they could experience higher costs of capital or lose out on potential future funding altogether.
Decision-makers that act today and drive their businesses to become industry leaders within this shifting landscape are going to set themselves up for success and allow themselves to continue capturing economic opportunity.
That first comes from a place of understanding the problem. What differentiates today’s leaders? What is an effective peer comparison? What data is available today and how will that change tomorrow?
These are important questions to answer for all energy companies — especially for those that will be around in the future. Evolution is not just for the energy mix itself, but for those who supply it and capitalize it.
So, how can the industry and investors understand ESG profiles?
Learn more about the importance of ESG for the energy industry here.
Learn more about Enverus ESG™ Analytics solution here.