Sustainability in the Energy and Industrial Sectors
Energy and industrial companies are at the center of many emerging environmental challenges and opportunities. As the need to transition to sustainable energy sources grows, energy companies must determine how they will address their environmental and carbon footprints, while meeting the world’s growing energy demand. Industrial companies will likewise play a critical role in helping their customers to identify solutions to reduce their energy use by being more efficient.
Viridis Strategy Group’s analysis indicates that there are two broad categories of energy and industrial companies: companies that take accountability for their operational impacts and actively pursue new business opportunities driven by sustainability; and those that do little more than comply with existing regulations.
Sustainability Drivers
Both energy and industrial companies are highly dependent on capital-intensive infrastructure. Their investment plans are shaped by the financial risks and uncertainties about emerging carbon, environmental, and energy regulations. Although there are many uncertainties as to the exact scope and timing of regulatory requirements, compliance will almost certainly get tougher and more costly. In addition, regulations and financial incentives will help determine which investment opportunities are most attractive. To position themselves for a low-carbon economy, leading companies will invest in operational efficiency, new energy sources and products and services.
As companies formulate strategies for opening up new geographies and new energy sources, they should anticipate increasing stakeholder pressure. In light of this, they will need to proactively engage policymakers, the public, local communities, and environmental NGOs on sustainable energy planning. Companies that are efficient and effective at engaging stakeholders and providing energy and efficiency solutions for a changing world have an opportunity to become leaders.
Challenges and Opportunities
In this dynamic environment, energy and industrial companies need to consider:
- How do we plan our capital investments given the uncertainty around energy and environmental regulatory policies?
- How do we prepare for shifts in global energy generation and demand, and how can we innovate and position ourselves to address these challenges?
- How do we communicate our sustainability efforts with stakeholders and demonstrate progress in a credible way so we can maintain our license to operate?
Viridis has worked closely with leading energy and industrial companies to navigate these and other issues.
Case Study
In 2009, in the midst of significant uncertainty about the regulation and pricing of greenhouse gas emissions in the United States and elsewhere, one of the world’s largest energy and petrochemical companies requested that Viridis help with further developing its environmental sustainability efforts. The situation represented both enormous risks and opportunities to different parts of the client’s business, and Viridis was asked to conduct a close analysis of their competitive situation, stakeholder environment, and the nuances of climate policy as it was developing.
Using our proprietary scorecard, Viridis benchmarked the sustainability performance of the company and its competitors, identifying high level strategy gaps and opportunities that, if addressed, would allow the client to participate in the policy debate on a different basis. These included recommendations for managing environmental impacts related to new exploration techniques and a plan for constructive engagement of critical stakeholders.
To help refine the client’s position on the emerging climate legislation, Viridis analyzed the potential trajectories and end points of the most likely draft legislative proposals, taking into account domestic drivers, international linkages, and the potential impact on various fuels for electricity generation.