The most pressing ESG concerns for the power industry

Environmental, social and governance (ESG) concerns need to be at the core of any power company that wants to continue to provide quality services.

Companies from across the power industry widely promote their corporate social activities, and improving their environmental rating is at the top of many corporate agendas.

However, as more firms are called upon to confront social inequity, corruption, tax avoidance and a lack of security, the power industry will need to find ways to improve their governance.

Electricity generation is one of the primary drivers of climate change. Fossil fuel generation is responsible for significant pollution, such as air pollutants from coal-fired generation. At the same time, the wider power industry, including renewable energy, has a large land footprint, and companies need to consider biodiversity risks when planning projects. The use, or overuse, of natural resources is a risk that power companies need to manage, with many exposed to risks associated with fossil fuel depletion. Also, all power companies must ensure that local communities and governments are engaged in their land management.

Emissions reduction is a key climate action strategy. Reducing emissions, chiefly by switching from fossil-fuel energy to renewable energy, is the most effective way for companies to make future-proof strategic decisions. Additionally, because renewable energy, especially solar energy, has dropped dramatically in price in the last decade, reducing emissions often implies increasing efficiency and reducing operating costs.

Carbon capture and storage (CCS) needs significant growth to contribute to net-zero emission. Retrofitting existing power plants is the most cost-effective option in the near term, especially in growing economies in Asia that are still heavily dependent on fossil fuels and coal. An increase in future hydrogen demand is also an incentive for additional CCS capacity. The formation of carbon capture, utilisation and storage industrial hubs and clusters will become more common and important to further incentivise new CCS capacity.

The power industry is intertwined with the local communities in which it operates. Those lucky enough to have a consistent power supply rely on the power industry to provide the energy they need. Power plants and operations use up vast amounts of land, and engagement with communities and governments is key. The power industry provides many jobs, often high-skilled, and the transition towards renewable power is creating challenges for a shifting workforce.

Power companies deal with a diverse workforce and customers, making social issues very important. Energy transition will bring about the challenges of reskilling and retraining the workforce. While on one hand, the growth in renewable energy will lead to significant job creation in these areas, there will also be job reduction in the fossil fuel-based industry.

Large-scale power projects involve the acquisition of large tracts of land and have an impact on the local ecology. Thus, companies must be sensitive to the demands of the local communities and ensure that they are involved in the key issues related to project development, especially those that will impact them.

Power utilities manage many customers, who get impacted by the quality and cost of power that they receive. Access to uninterrupted electricity improves the quality of life of customers so there is a social responsibility of power utilities to increase the electrification rate and bring the remote and marginalised communities in their ambit.

Power generation companies need to ensure that their operations remain safe and economically viable. The changing demographics of the employees is also forcing companies to adopt sustainable and clean technologies.

Companies will need to be transparent in their disclosures and ESG reporting. Current qualitative information has been centred around sustainability, core values and net-zero emissions targets. These disclosures also discuss social impacts, such as community relations, workforce health and safety, biodiversity impact considerations and both near- and far-term stakeholder impact. While regulatory bodies will be responsible for ensuring proper disclosures and reporting, there will also be pressure from the customers and peer groups to adhere to these. Companies will need to adopt globally accepted standards and established reporting frameworks.

There is a need for internal governance structures. It is important to recognise who within the company is responsible for ESG management and performance disclosure, and what is the internal governance structure. Board members need to understand the risks and opportunities for business with respect to sustainability. They also need to ensure a consistent narrative regarding the company's sustainability measures.

Power companies need to maintain social and gender diversity in the workforce. As women are taking up varied roles across sectors and organisations, the power sector needs to ensure that there is fair gender diversity in the workforce. Companies also need to maintain social diversity in the workforce.