Read more to find out how ESG is shaping the energy transition.

No longer viewed as a fringe concept, ESG has taken off in popularity over the last several years and evolved into a business imperative for companies to generate long-term value for their stakeholders, including members of society and the environment in which they operate, as they adapt to the “energy transition.” While challenges associated with the energy transition can become market opportunities, risks associated with ESG aren’t as straightforward.

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However, ESG has the potential to reduce costs, boost stock performance, and increase customer and employee loyalty, among other things. This trend is evidenced by the breadth of companies that have already embraced implementing ESG initiatives. As of 2020, 88% of publicly-traded companies, 79% of venture and private equity-backed companies, and 67% of privately-owned companies had ESG initiatives in place, according to NAVEX Global.

When it comes to the “E” in ESG specifically, the focus on decarbonizing the energy value chain has strengthened and accelerated the energy transition. Here are the top three ways ESG is shaping the energy transition:

1. Greenhouse Gas (GHG) Emissions – Managing environmental factors has become a core component of the new frontier in ESG—that is, the investing practice of managing ESG risks and opportunities. Many energy companies had been reporting on GHG emissions stemming from their day-to-day operations well before the ESG trend took hold. At a time when the oil and gas industry is coming under intensified pressure from ESG investors to reduce its environmental impact, a textbook example of low-hanging fruit is the venting and flaring of natural gas. According to the U.S. Energy Information Administration (EIA), the volume of U.S. natural gas reported to be vented and flared in 2019 reached its highest average annual level since 1961, at 1.48 billion cubic feet per day (Bcf/d). North Dakota (0.50 Bcf/d) and Texas (0.75 Bcf/d) accounted for 85% of the reported vented and flared natural gas, or 1.25 Bcf/d. While there is no panacea, the oil industry is actively taking steps to curtail, and in some cases, even eliminate flaring. Several upstream energy companies are employing new methods and technologies to reduce flaring of emissions such as incorporating natural gas-powered “frac fleets,” utilizing natural gas-powered on-site equipment, and potentially monetizing the would-be flared gas by converting it into LNG and transporting it to other locations for sale.
2. Renewable Energy – At its core, the energy transition is transforming the global energy sector from fossil-based energy systems of energy production and consumption to renewable energy sources. So far, renewable energy is making significant inroads within the utility and power sector, especially in the U.S. In the first six months of 2022, 24% of U.S. utility-scale electricity generation came from renewable resources, according to EIA data published in September 2022. The renewables’ share increased from 21% for the same period in 2021, making renewables the fastest-growing electricity generation source in the U.S. Renewable generation sources include conventional hydropower, wind, solar, geothermal, and biomass. In the U.S., most renewable electricity comes from hydropower, solar, and wind. Fossil fuels—coal, natural gas, petroleum, and other gases—continue to comprise the lion’s share, making up 61% of all electricity generation in 2021.
3. Energy Efficiency – Energy efficiency is the ratio between the useful output and input of an energy conversion process. Energy efficiency is a headwind for utilities, but it supports the overall economy’s resilience in the face of high energy prices. Energy efficiency is also a positive trend vis-a-vis energy transition, making it easier to decarbonize the economy. From a climate/environmental perspective, the basic premise behind energy efficiency is obvious: the less energy consumed—even the cleanest type of energy—the smaller the carbon footprint. Looking at commercial buildings specifically, the EIA estimates that the average amount of energy used per square foot decreased by 12% from 2012 to 2018. Electricity consumption per square foot decreased by 14%, and natural gas consumption per square foot decreased by 11% from 2012 to 2018.

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Economic considerations, regulatory requirements, and ESG pressures are combining to create an impetus to address and push momentum toward the energy transition in a concerted way. Contact us today to find out how we can help you navigate the ESG journey toward a more sustainable way of doing business that creates long-term value for your investors, community, and stakeholders.

About The Expert

Linden Nicosia is a Director in Opportune LLP’s Restructuring and Disputes & Litigations practices. Linden has a specialty in the oil and gas industry with a focus on risk management. Her academic background in supply chain management and finance provides her with a systematic approach to solving clients’ problems. Linden holds a BBA in Logistics, Materials, and Supply Chain Management from Texas A&M University.