Energy and utility companies with advanced sustainability initiatives earn more revenue, improve brand and company valuations, and are perceived positively by investors, regulators and clients.
This is according to a new report from the Capgemini Research Institute, Powering Sustainability: Why energy and utility companies need to act now and help save the planet.
The report also found that the sector is diversifying into clean sources of revenue, however energy-related greenhouse gas (GHG) is currently contributing 73% of all emissions globally, and more needs to be done for companies to become sustainable to also help the whole economy to mitigate the climate risk.
With the Green packages (European Green Deal for instance) and other carbon related regulatory deadlines looming, failure to act is becoming expensive. In the face of this, large organizations are leading the way towards sustainability, declaring clear and ambitious goals for reducing or eliminating carbon from their company’s value chain, with European major Utilities showing the way.
Capgemini surveyed 600 senior industry executives across 300 organizations and found that energy and utility companies are moving from viewing sustainability as a threat to seeing it as a ‘raison d’être’ as well as an opportunity, and are moving fast securing a “license to operate” to playing a critical role in transitioning to clean energy.
With sustainability at the core of operations, close to two-thirds (64%) of organisations say that they have generated a revenue increase from sustainable operations, with more than half of organisations investing in at least six clean sources of revenue, including green hydrogen (59%). Other benefits of these sustainable investments include enhanced brand value through to positive environment, social, and governance (ESG) perception.
Barriers to progress remain
Despite this progress, energy and utility organisations still struggle to convert intention into reality. While 57% said they had a mature approach – meaning sustainability initiatives deployed widely throughout the organisation and to the benefit of their clients in terms of environmental responsibility. This relatively strong maturity does not reflect in other areas. Achieving scale has also emerged as a critical hurdle, with only 3% of organizations actively scaling some initiatives across regions or establishing a comprehensive global initiative to reduce Scope 3 emissions.
When it comes to reducing emissions, the report reveals that less than half of organisations (42%) have mature practices in place for reducing Scope 1 emissions, and only 3% having mature practices for tackling Scope 3 emissions.
The ongoing COVID-19 crisis represents another challenge. While overall the pandemic has caused the global decline of CO2 emissions (of 2.4 Gt) at the fastest rate since 2010, they need to decline another 60% to ensure that, by 2050, temperature rises are kept below 1.5 to 2°C of pre-industrial levels. As a result of COVID-19, 37% of survey participants said they have slowed the pace of sustainability investments considerably.
Within the context of the Paris Agreement to limit global warming, the report found that just 6% of energy and utilities organizations are currently on track to meet these targets. And three in five organizations say that they will either be unable to meet or are unsure whether they will meet the Paris Agreement targets.
“While progress has been made in the sector, it is clear that energy and utilities organizations need to do more to curb the harmful impacts of climate change and accelerate their sustainability programs,” said Philippe Vié, Global Head of the Energy and Utilities sector at Capgemini, “Setting an ambitious strategy and vision is one thing – but delivering against it is a major challenge, notably on emissions – scope 3. To prepare for the future, organisations need to recognise that for true impact and change, they must upgrade their models to meet the demands of a sustainable world and seize the full potential of technologies to deliver on ambitious targets.”
The report highlights a series of key recommendations for energy and utilities organisations to prepare for a sustainable future. Organisations need to begin by radically transforming their business models by progressively curtailing capital investments in fossil-fuel businesses for growth, creating a roadmap to phase out existing emissions-intensive assets, and diverting capital into renewables and low-emissions operations. They also need to maximise the use of and investment in renewables, use technology to accelerate the sustainability journey, offer low emissions/clean energy solutions to customers to reduce Scope 3 emissions and scale social inclusion and economic sustainability efforts.
In reaching ambitious sustainability goals, technology has proven useful: a combination of deep and digital technologies like IoT, automation, data analytics, hydrogen and storage technologies, electrification of uses – as well as Artificial Intelligence/Machine Learning – are the top-ranked technologies that energy and utility companies are investing in. More than half (55%) of companies have collaborated with established technology firms to bring new ideas and practices to their sustainability agenda. Yet despite these potential benefits, the extent to which global organisations have achieved scale with tech-related use cases is low.
Philippe Vié concludes: “In the ‘decade of delivery’, aiming low is a mistake, given the huge transformation required to meet the Paris Agreement targets and the EU player mandate on Energy Transition. For energy and utilities organisations, the message is simple: the scale of the challenge is huge and continues to grow further. Companies that do not act with urgency face loss of revenue, alienated investors, and heightened risk of losing their social license to operate. Incumbents need to take bold steps now: setting out a clear path to sustainability, with well-defined goals and determined action. The cost of inaction is huge, while the right steps can future-proof companies’ business models for decades.”
Read the full report and its recommendations.