ESG in the energy and renewables sector – from idea to action. How to build value, resilience and competitive advantage?
The ESG paradigm shift – from noble idea to real value creation
In recent months, the discussion around ESG (Environmental, Social and Governance) has taken on a new character. More and more often we hear questions such as: “Has ESG come to an end?”, “Is ESG just a passing fad?”, “After the wave of regulations and growing requirements, are we not simply returning to business pragmatism?”
These questions are accompanied, on the one hand, by hopes that regulators – and thus business – will step away from sustainable development altogether, and on the other hand by confusion and uncertainty as to how to position one’s business in such a rapidly changing landscape. Some sectors, such as producers of renewable energy sources (RES), are also watching with concern as certain political narratives question the rationale for an energy transition based on renewables.
Meanwhile, market practice looks completely different: ESG has not died – it is maturing. Only the centre of gravity has shifted – from declarations and storytelling to real action and integrating ESG into the business model.
As ESG matures, companies’ awareness grows with it. Organisations which until recently perceived ESG mainly through the lens of a demanding and resource-intensive reporting obligation now understand that it is about much more – about risk management, building resilience, responding to stakeholder expectations, obtaining attractive financing and maintaining competitiveness in the market.
Reporting is important, but it is the end product of a comprehensive transformation of the enterprise towards sustainable development; it should not be a goal in itself. It is also worth remembering that ESG reporting will not look the same for all organisations. Its final form will be driven by the size of the company, its value chain and the expectations of key stakeholders. These factors will determine what companies will be required to report and to whom. In the case of smaller companies, this will often mean disclosing very specific data, whether to customers or to financing institutions.
ESG today is a strategic tool for building competitive advantage
In such a rapidly evolving sustainability landscape, one clear trend can be observed – companies are ceasing to treat ESG as a collection of “soft values” and are starting to use it as a real strategic tool. For many of them, it has become a key source of competitive advantage – both in relations with investors and financial institutions, and with clients, who increasingly choose their business partners not only based on commercial terms but also on the values demonstrated by a potential supplier or partner.
This is particularly important at a time when many ESG regulations – above all the CSRD (Corporate Sustainability Reporting Directive), the ESRS (European Sustainability Reporting Standards) it introduces, as well as the EU Taxonomy for sustainable activities – are still in the phase of implementation, interpretation, clarification or simplification. In the face of this uncertainty, many organisations have chosen a wait-and-see approach and inaction. However, such a stance may cost them their market position.
A lack of action may be associated with the following risks:
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failure to obtain financing (as more and more banks assess projects in line with the EU Taxonomy guidelines),
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being excluded from the value chains of larger entities,
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loss of customer and investor trust,
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lack of preparedness for new reporting obligations.
A proactive ESG approach – starting from impact identification and risk management, and subsequently developing a sustainability strategy – can prepare companies, in due time, not only for future crises but also for the growing market expectations around responsible business conduct.
Renewable energy sources – a “green” product is not enough
In the RES (renewable energy sources) sector, we often encounter the belief: “Our product is sustainable, so ESG is taken care of.” This is a misconception that can entail the very list of risks mentioned above. Today, it is no longer enough to offer “green” solutions – what matters is whether the entire organisation operates in a sustainable way.
A “green” product does not exempt a company from responsibility for emissions in the supply chain, fair treatment of employees, transparency in reporting or ethical relations with partners. A company may be generating green energy, but if its production processes create an excessive carbon footprint, the management board lacks diversity, and its suppliers violate labour rights – it will perform poorly in an ESG assessment.
ESG applies to the entire organisation and requires consistency in actions, policies and reporting. In practice, this means that in a company from the RES sector, sustainability principles should permeate every area of the organisation: from the business model and strategy, through human resources management, to procurement and logistics.
In other words – in today’s reality, a “green” offering is only the starting point. True competitive advantage is built when the entire organisation operates in line with ESG principles – and this requires consistency, measurable targets and transparency at every stage of operations.
An important aspect in the RES sector is obtaining financing for new projects. In this process, the consideration of ESG factors is also crucial, because financial institutions and investors ask very specific questions before granting preferential financing:
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Can the company demonstrate that the investment is aligned with the EU Taxonomy, including the DNSH (Do No Significant Harm) principle?
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What are the company’s Scope 1, Scope 2 and Scope 3 greenhouse gas emissions?
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Does the company have an ESG strategy, a decarbonisation plan and a diversity policy?
If a company does not have answers to these questions, even the most technologically sustainable product may lose its attractiveness, and the company may be perceived as unprepared for the transition.
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Do you have any questions? Please contact me:
Katarzyna Chwalbińska-Kusek
Partner, Head of ESG Advisory
