Environmental, social, and governance (ESG) Initiatives throughout the energy industry are becoming more prevalent as market demands shift. McKinsey reports that “True ESG is consistent with a judicious, well-considered strategy that advances a company’s purpose and business model.” Incorporating these initiatives into energy business strategies is essential, but it does introduce complexities to the skills required for the workforce to perform their job roles.
As organizations focus their operational efforts on deploying qualified individuals, energy skills and competency management will be key in implementing new ESG goals.
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Frequently Asked Questions About Energy ESG Initiatives
Environmental, social, and governance (ESG) initiatives are used to describe an organization’s financial interest and impact on the market as it relates to sustainability and ethics.
In energy, ESG standards are used by external stakeholders such as investors, the government, and society to screen organizations, and ensure they are acting in the best interest of the environment and their communities.
As organizations implement new processes, operational practices, and policies relating to ESG initiatives, skills management helps ensure the workforce is continuously skilled, compliant, and deployable to perform safely on the job site.
Energy skills and competency management is the business process of identifying critical skills, assessing organizational capability, and developing your workforce to meet current and future demands.
What Are ESG Initiatives?
“ESG” stands for “environmental, social and governance.” These initiatives depict an organization’s impact on the market through its ethical, sustainability, and financial interests.
Environmental initiatives primarily address climate change concerns in the eyes of stakeholders. Every company uses energy resources and is affected by the environment in some way.
Social initiatives typically address corporate social concerns, encouraging ethical business practices throughout the company and its community. This is inclusive of the relationships and reputation with the communities, businesses, and institutions where business is conducted.
Governance initiatives encompass policies designed to promote company transparency in its management. This is inclusive of the internal systems, practices, controls, and procedures, and how the organization governs, makes decisions, and complies with the law.
Why Are ESG Initiatives Important?
The energy industry which has primarily consisted of oil and gas now comprises a more diverse portfolio of energy assets. The current market landscape represents an increase in government regulation surrounding ESG initiatives, as well as a remarkable uptick in investment toward organizations with ESG priorities. It’s also pressuring companies to report their stance on ESG matters to the public.
With investors, the government, and society at large demanding action, energy companies are moving forward and implementing tools to help their workforce and organizations adapt.
ESG Trends in the Energy Industry
ESG conversations began gaining significant momentum in 2006 when the United Nations Principles for Responsible Investment report required that environmental, social, and governance issues be incorporated into the financial evaluation of a company. In the early 2010s, organizations began reforming corporate governance laws, codes of best practice, investment stewardship, and other company initiatives. Later in the decade, social and environmental expectations began to take root. These actions paved the way for “a more sophisticated ESG environment” in the 2020s.
Key trends for the current decade include:
- Committing to net-zero emissions by companies and investors.
- Incorporating sustainability as a tool to manage risk and create shareholder value.
- Mandating ESG disclosures and standardizing reporting.
- Making investment decisions based on ESG risk assessments.
- Rising prevalence of ESG-related shareholder activism.
- Using technology to measure, calculate, assess, and monitor ESG factors.
- Shifting towards diversity across the organization, from the C-Suite to the front line.
- Linking executive incentives to ESG-related metrics.
- Increasing political pressures on the ESG landscape and company response.
Ultimately, those in leadership need to think about ESG as part of an organization’s overall strategy to perform better for stakeholders, investors, employees, and the community. ESG considerations will also be critical to access pools of capital that can benefit the company in the long term.
Implementing ESG Initiatives
ESG creates value in five ways:
Top Line Growth: Tap into new markets and expand throughout existing ones.
Cost Reduction: Combat rising operating expenses with resource efficiency.
Reduced Regulatory and Legal Interventions: Achieve more strategic freedom and ease pressures from regulatory and governmental bodies.
Employee Productivity and Uplift: Attract and retain quality employees and enhance employee motivation with a sense of purpose, which in turn increases productivity.
Investment and Asset Optimization: Improve investment returns by allocating capital to more promising and sustainable opportunities.
There’s no one-size-fits-all approach to incorporating ESG strategies into the business. Like other initiatives, it begins by setting standards, understanding the current state, identifying areas for improvement, and then continuously measuring and benchmarking against those set standards. It can be helpful for organizations to go through each category — Environmental, Social, and Governmental — one at a time to understand what the company is already doing, what can be improved, and what should be added to comply with standards.
ESG Across the Energy Value Chain
Across the energy value chain, implementing ESG initiatives will look different based on what’s deemed most critical for each company. Here are a few examples:
- Reducing the impact of drilling and extraction on the environment by implementing environmental management systems.
- Adopting more sustainable practices with efficient water and energy usage.
- Ensuring the safety and health of the workforce by promoting responsible labor practices.
- Mitigating methane leaks from pipelines and storage tanks to reduce emissions.
- Protecting water sources and decreasing noise pollution to minimize the impact of infrastructure on communities.
- Engaging with local communities for a more socially responsible presence.
- Promoting sustainable practices, such as a more responsible consumption of energy sources.
- Improving the refinery process by using cleaner technologies, reducing waste, and discarding materials responsibly.
- Ensuring ethical business practices such as labor standards or human rights.
Power and Renewables
- Advancing the development and deployment of renewable energy sources to reduce reliance on fossil fuels.
- Using eco-friendly materials throughout the production and deployment of energy sources.
- Getting involved with local stakeholders to ensure projects are developed in a socially responsible manner throughout their respective regions and communities.
How Does Skills Management Help Organizations Implement ESG?
As operations adjust to meet new ESG standards, the skills and competencies associated with each job role will be impacted. Each adjustment can impact the safety, quality, and compliance of the workforce on the job site. Gaps in skills or knowledge can be costly — in dollars, lives, or public perception.
Individuals across the workforce will need to be upskilled, reskilled, or cross-skilled to meet new business objectives and regulatory requirements. A robust skills management software and process can help align company leadership and the workforce to current and future business needs.
Skills data gives a complete picture of what the workforce is capable of doing and what gaps exist. As company leadership identifies ESG priorities, consulting this validated skills data can ease the transition into new operational practices and guide conversations about how to implement initiatives throughout the organization.
- What processes or systems will these ESG initiatives affect?
- How will this impact the job roles associated with those respective processes and systems?
- What skills will be needed for those individuals to evolve and fulfill these job role responsibilities?
- What skills and capabilities exist in the workforce today?
- What training and development can be provided to ease the workforce into these new responsibilities, support business objectives, and meet regulatory requirements?
Energy ESG and the Benefits of Skills Management
Skills management is an essential tool that positively impacts business operations and outcomes. Kahuna’s skills management platform supports organizations as they evolve the organization and workforce needs, enabling leaders to:
- Understand and identify current skills throughout the workforce, as well as those needed for the organization to operate effectively in the future.
- Manage risk for external stakeholders by making more informed, operational decisions relating to environmental, financial, and social issues.
- Analyze areas of strength in the workforce and make incremental improvements to services that align with ESG initiatives.
- Build resiliency into the organization as business needs and industry regulations advance.
- Maintain compliance with governing agencies, even as regulations evolve, to mitigate fines and liability.
- Ensure competency assurance and safety remain top priorities throughout the organization as operations adjust.
- Increase the quality of work, efficiency in operations, and customer satisfaction.
Want to learn more about how Kahuna skills management can support your organization’s ESG efforts? Talk with a skills advisor.