Energy security cannot be achieved in a vacuum. It must be accompanied by a strong focus on sustainability, Scope 1-3 emissions reductions and scaling and expanding clean energy technologies and supplies. Secure energy is sustainable energy. And sustainable energy can be a compelling business.
We believe sustainable energy is the field in which companies can capture future growth and related market multiples. In a world with increasing energy needs and a compression of fossil fuels’ share in the energy mix (from 80% to up to 50% by 20503), low-carbon energy can grow by leaps and bounds. We have already seen that in wind and solar. We are now set to see, or at least require, faster growth in areas like carbon capture, utilization and storage (CCUS), hydrogen, alternative fuels, and energy storage. In other words, low-carbon plays are essential for the long-term vitality of energy companies.
The good news is that over the past several years energy companies have embraced the sustainability agenda. There are several reasons, including customers and investors’ growing interest in environmental stewardship and regulators’ toughening stances on carbon emissions. The benefits of energy sustainability, however, extend beyond goodwill and investor interest. Our research has found that energy companies that achieve better financial performance seem to be the ones paying greater attention to environmental, social and governance (ESG) metrics. While it’s too early to attribute causation, a correlation appears to be emerging between ESG performance and better stock prices, lower cost of capital and higher shareholder returns.
Even better news: Our most recent research confirms that energy companies are placing greater importance on both security and sustainability. From an overall sample of 201 companies, energy security is now getting the most attention. But companies identified as reinvention leaders in our survey are emphasizing both. As they should.
Among oil and gas companies, both energy security and sustainability are growing in importance.