The energy industry has been known for stringent safety practices, excellent employee benefits and perks, a global network, innovation and a proactive approach to anti-bribery and corruption, but the intense media and public scrutiny it faces today is unprecedented. It is not only grappling to manage the fallout from the global pandemic, it is buckling under pressure to meet ambitious targets to reduce greenhouse gas emissions, put in place to ensure the global temperature rise stays well below 2C by the end of the century.
A recent global survey by Impos MORI found that 71% of people believe that climate change is as serious as the coronavirus, a global health emergency that has had catastrophic, and long-lasting, health, social and economic consequences around the world. It’s not surprising then that we’re seeing the reduction of greenhouse gas emissions high on the agenda of governments and corporate boards around the world.
Producers of fossil fuels are again struggling with very low margins which flows directly down and impacts the supply chain. Companies that were starting to see signs of recovery are yet again facing cycle pain impacting activity levels and leading to price pressure, and tougher competition.
Many businesses are struggling to survive, and what will happen to the focus on long-term environmental, social, and governance (ESG) factors at this time? We can expect some push back due to the pandemic because countries and organizations have had to spend huge sums of money keeping their people safe and providing essentials to the communities in which they operate. The global warming challenge will not go away, however. We have started on a journey to Net Zero, and that will need to continue.
Highlighting this, the coronavirus pandemic has led to an intermediate reduction in industrial activity and transportation shutting down on a large scale across the globe, resulting in air pollution levels being slashed. It has been called the “largest-scale experiment ever” in terms of the reduction of industrial emissions.
The United Nations and NGOs are calling for the government to use this as an example of what we can achieve if we move towards a low-carbon economy. Many will remember the positive impact during a time of uncertainty. This has led to energy businesses facing increased scrutiny over their actions and pressure to make their operations more socially and environmentally responsible.
However, when looking at the bigger picture, we need to understand and remind ourselves that the market for fossil fuels won’t disappear overnight. It is the negative environmental impact of both producing and consuming this part of the energy mix that needs a long-term focus. This includes making upstream activities cleaner, but most importantly it is necessary to make radical changes and improvements to the way fossil fuels are being consumed.
Companies formerly known as oil majors are slowly coming to terms with this, they now call themselves energy companies and they are starting to acknowledge that their continued “license to operate”, as well as their community and investor acceptance is dependent on a commitment from them to make meaningful efforts in reducing greenhouse gas emissions from the whole fossil fuel value chain.
This means the companies traditionally seen as bringing energy to the market, are now being seen to care about how the energy is being consumed both in the private and industrial consumer markets. We are seeing more and more energy companies considering what they can do to enable avoidance or reduction of greenhouse gases, so that their net result is a positive contribution. Companies that master this will emerge as attractive both for investors and consumers.
The pandemic has shown that sustainability and resilience are key factors for the survival of any organization, small or large, operating in almost any country or jurisdiction. At EV Private Equity, we believe that there will be a continued and even strengthened ESG focus as a result of this last crisis, after all, it has highlighted how vulnerable we all are – as individuals, as businesses and society.
At EV Private Equity we have the reduction of greenhouse gas high on our agenda, and we strive to support the energy transition through investments in companies delivering emission-reducing and energy-efficient solutions compliant with the goal of a sustainable future. As an example, we recently collaborated with the UN Principles for Responsible Investment (PRI) to further enhance our ESG performance and we will now be implementing even more stringent reporting and follow up procedures across our entire portfolio. Efforts in businesses focused on supporting an energy industry committed to delivering on their environmental and social responsibility.
Longer-term, the trend will continue, and we must expect to see a continuous improvement pressure leading to more and more stringent requirements on those who are making investments, and those responsible for producing goods and services, ensuring that they do this in a sustainable manner. We will see this both from legislators and financial owners, and the so-called EU taxonomy, an inter-governmental tool to help investors, companies, issuers and project promoters navigate the transition to a low-carbon, resilient and resource-efficient economy, is a very good illustration of this. The winners will be those companies where the owners, boards, and executives act accordingly and proactively.
I think that both things like the pandemic and TPI’s criticism have only helped to move the needle when it comes to putting environmental issues higher on the boardroom agenda. It has put further increased pressure on energy majors and those servicing this industry to turn their net-zero plans into actions, and it has spurred companies to increase transparency when it comes to their green credentials.
A good example is demonstrated by BP when they revealed their approach to net-zero emissions. This can only be seen as a good thing, but it’s a marathon not a sprint, and we need everyone to be on the journey to achieve the ambitious net-zero goals.
About the Author:
Einar Gamman is a Senior Partner at EV Private Equity, and is based in Stavanger, Norway.
He has 35 years of industry experience, whereof half of it was spent working in Venture Capital/Private Equity. He holds an MBA from INSEAD in France and a MSc. In Naval Architecture & Marine Engineering from NTNU in Norway.
Prior to joining EV Private Equity in 2003, Gamman held senior management positions in Tentech International, ABB Offshore Technology, JP Kenny, and Smedvig Offshore and had also worked with several Energy Industry venture companies at board level.
After joining EV Private Equity Gamman has been involved in multiple successful energy technology investments and exits, and he has been responsible for the EV Private Equity Advisory Board, its composition, and its investment themes and trends activities since its 2005 inception.
He is currently Chairman of Cereus Downhole Technology and a board member of ProSep and FourPhase AS