Sustainability is among the most crucial priorities for businesses across the capital-intensive industries. The growing focus from customers, employees, and investors on environmental, social, and corporate governance (ESG) issues is a catalyst for change. In Europe, we are seeing both national and continent-wide initiatives that are making a positive impact on these issues. The European Green Deal, for example, proposes €1 trillion in sustainable investments over the next decade. Moreover, France recently announced plans to spend more than US$8 billion on a decarbonized hydrogen economy through 2030, beginning with a European hydrogen project in 2021.
Across the entire EMEA region the challenges brought about by COVID-19 over the past 18 months have accelerated the process of putting ESG initiatives at the forefront. ESG issues have motivated businesses in the capital-intensive industries for years, but the pandemic has acted as a catalyst for change – and placed these issues firmly at the top of the agenda for organisations across these sectors. Capital-intensive companies today are more committed than ever to meeting their sustainability targets. But why exactly is this?
Drivers of Sustainability
Over the years, investors have differentiated their portfolios by offering ESG-conscious funds. These funds now represent a growing proportion of the investment funds in the marketplace – accounting now for $51B of new money from investors in 2020. That ability to access finance is pressuring companies further to embrace ESG to implement and meet sustainability targets. Indeed, investors are being active, demanding oil companies put in place sustainability targets and commitments to deliver on the Paris climate change agreement.
We are seeing increasing numbers of oil and gas companies adopting net zero carbon emission targets by a certain year in the future. Five European oil and gas companies have announced net-zero 2050 ambitions so far. We are witnessing chemical companies establishing thermal emission targets but now additionally making commitments around plastic waste – an initiative which is rapidly becoming a priority for governments and regulators across EMEA.
Simultaneously employees and customers expect organisations across these industries to be good upstanding citizens and run clean, efficient businesses. The latest generation of workers and customers are demanding greater accountability around sustainability. Organisations know that if they want to protect their brand reputation and attract these people to work for and engage with them, they must build cleaner, safer, and greener businesses that allow them to contribute to creating a world fit for tomorrow.
So, in order to remain profitable and relevant in the marketplace, companies must work to grow the “triple bottom line,” and balance the impact of company operations on people, the planet, and profits – the social, environmental and financial trifecta.
Today, therefore, it is time for the industry to deliver on the promise of ESG. We are seeing many businesses across the capital-intensive industries put strategies in place that are designed to achieve their ESG targets – with definitive action needed next. For these businesses, sustainability is and will continue to be a driver of digital transformation. Whereas in the past investment in digital was often justified on the basis of its potential to deliver enhanced profitability, today, this kind of funding is just as frequently signed off on the basis of its ability to deliver a reduction in CO2 emissions. It hits the bottom line, just from a different angle.
Those businesses that had tentatively looked at adopting more digital technology in the past, have had to dive into digitalisation to ensure business continuity and to deliver more efficient operations. Many are embracing the innovation that digitalisation provides them. They are using software to analyse the relative benefits and economics of sustainability options for reducing carbon emission in existing processes. They are using machine learning to better predict and avoid costly failures that can lead to significant emissions. Others are investing in new technologies like green hydrogen, where renewable energy sources are used to create energy-carrying molecules, to developing polymers to improve the efficiency of closed-loop recycling. Taken as a whole, these technologies drive operational efficiencies but also reduce environmental damage.
Forging Ahead to a Sustainable Future
Across the energy sectors, driven by the events of the pandemic, organisations are now forging ahead with sustainability, challenging pre-existing assumptions about what is possible. ARC Advisory Group recently confirmed, for example, that most global chemical companies have sustainability initiatives in place.
CEOs from top chemicals companies are committed to reduce waste in the environment. Oil companies are applying technology to help meet carbon emission targets. Sustainability is already woven into the fabric of these organisations. In that sense, they can stop focusing on going digital and start concentrating instead on being digital. That is a testament to how far these businesses have come on the journey to sustainability and digital transformation. They are already delivering on the promise and the future will see this vision realised more fully still both across EMEA and the wider world.