An ESG strategy is critical to today’s business operations, especially in the energy sector. This article explores the rapidly increasing importance of ESG and outlines 3 ways your engineering consultant should support your ESG strategy.
Perhaps the most explosive three-letter combination since Trinitrotoluene gained its common abbreviation (TNT!).
Of course, we’re not talking about highly flammable chemical compounds. We’re referring to Environmental, Social, and Governance (ESG).
Three intertwined concepts that have quickly established an undeniable influence over how companies operate. And will continue to do so for years to come. Especially in the energy sector, where ESG factors can dictate whether a company gains financing for its assets.
“ESG investing” is officially tagged as an EXPLODING topic on the trend-watching website, explodingtopics.com.
The steep trendline in this image tells an important underlying story.
A company’s strong financial performance will no longer be enough to attract interest from the global capital markets. GSI Alliance reported that global sustainable investments topped $35 trillion in 2020, a 55% increase over 2016.
To gain access to sustainable investment funds, energy companies will need to perform well on various ESG reporting frameworks. Integrating ESG initiatives throughout any large organization requires a comprehensive strategy.
This article explains why an ESG Strategy is critical to today’s business operations and outlines three important roles your engineering contractor should play in developing a practical ESG strategy.
Why ESG Strategy Matters
The rise in more responsible investing practices means an energy company’s business strategy needs to consider ESG criteria. And not just in its own daily operations. As McKinsey points out, ESG elements are so intertwined, they become an inextricable part of how and with whom you do business.
This means sustainable investment decisions will be based on long-term ESG performance throughout the supply chain.
Maintaining the types of ESG scores investors seek will require a full lifecycle approach to asset management. One that considers the needs of all stakeholders, present and future.
There are two significant challenges when developing a comprehensive ESG strategy.
1) Lack of Global Standards
One of the biggest challenges facing companies is the lack of global ESG standards.
Fund managers continue to evolve their frameworks. Regional regulatory bodies are still catching up to the explosive growth in ESG investing.
New regulations related to how energy producers track environmental performance, social responsibility, and corporate governance are coming. Unfortunately, the ESG frameworks and monitoring will continue to vary by jurisdiction.
Regulatory requirements around produced water treatment, for example, are very different in the United States than in Canada. That’s relatively simple to track.
Where it gets more complicated is in the calculation of total emissions intensity related to different products and materials throughout the global supply chain. When formulating a strategy for evolving ESG criteria, a wide net must be cast.
Which leads to the second challenge.
2) Insufficient Data & Analysis
Imagine a carbon trading system where operators can improve overall ESG scores by feeding workers locally grown produce to offset facility emissions. It’s not that farfetched, indoor farmers are keen to harvest the ESG value of their operations.
So, what’s the procedure for calculating the GHG savings related to using local, hydroponically grown strawberries rather than importing strawberries from distant locations?
Data architecture is critical when every operational detail is an opportunity to positively or negatively influence your overall ESG calculation. Companies need to be strategic about mitigating ESG risks.
For asset owners, ESG strategies will likely include stricter evaluations of how your service companies operate. For service providers, this means everything from hiring practices to sustainability reporting could influence bid decisions.
Of course, these ESG considerations raise an important question.
How will companies track, analyze and improve upon vertical ESG integration over the full lifecycle of an energy asset?
In BlackRock’s 2020 Global Sustainable Investing Survey, 53% of respondents cited the poor quality or availability of ESG data and analytics as the biggest barrier to deeper or broader implementation of sustainable investing.
These challenges are not insurmountable, but they do need to be considered in an ESG strategy.
All Roads Lead to Engineering
Sound ESG strategy must be based on data. Energy companies can ill afford to base decisions on lagging indicators. This is especially important in a post-pandemic world focused on more progressive GHG emissions targets.
Every capital project begins with engineering and the same could be said about your ESG strategy. Here are three important ways engineering can help improve your ESG score.
1) Single Source of Truth Project Execution
Over the last 10 years of helping clients save millions of dollars in capital costs, we’ve learned that the earlier an asset adopts a digital project execution model, the greater the savings potential becomes.
The same principle applies with ESG strategies. Implementing a single-source-of-truth model gives all stakeholders on-demand access to trustworthy data that can simplify ESG reporting.
It makes sense to include your SSOT implementation in the scope of your engineering contractor or system integration consultant. The ESG reporting framework will need to incorporate data from your engineering design, procurement, fabrication and construction phases.
Launching your A technical data portal (also known as digital project hub) is a web-based application that allows users to organize, validate and collabo… from the onset of engineering has many benefits. It can streamline the digital transformation of your operations and gives all stakeholders real-time visibility throughout the life of the asset.
Data management via an SSOT execution model should be a pillar of any ESG strategy.
2) Technology Selection
The environmental footprint of your energy processing facility is a critical ESG consideration. Lowering emissions intensity boils down to engineering design and technology selection.
Your ESG strategy should include a plan to transition to a more efficient engineering design. An experienced engineering contractor will understand the intricacies of integrating clean technology with an existing facility while limiting downtime.
Brownfield industrial processing facilities don’t cut their footprints in half overnight. Jennifer Gray, a longstanding mechanical engineering manager with Vista, describes the transition as a series of baby steps.
These small changes add up to lower emissions. The role the engineering company plays is to help guide operators through these important decisions by making recommendations based on data and experience.
A few years ago, Vista was independently contracted to engineer three separate projects funded under the federal government’s Oil and Gas Clean Tech Program.
In our experience, this process works best when it is a collaborative effort between the facility operator and the engineering contractor. The ESG strategy should outline the criteria for selecting the right engineering partner to assist in this decision-making process.
3) Procurement Data Management
Engineering and procurement (EP) services are offered together for good reason. An asset’s engineering specifications guide the procurement process.
The procurement team needs the detailed engineering design to advance RFQs and vendor evaluation. The two departments work hand-in-hand.
In the evolving world of supply chain ESG, procurement data management proficiency cannot be overlooked. Sure, tracking the emissions intensity of hydroponically grown berries may seem implausible.
But an advanced ESG strategy could reasonably expect your EP contractor to track and compare the water consumption each vendor requires to produce a 10-metre span of pipe.
These details impact your overall ESG score, and your engineering contractor should have a plan to collect and analyze the data.
At Vista, we developed a highly customizable project-based procurement and materials management software that could be configured to track ESG metrics. It’s called Current SCM.
The Importance of Engineering in ESG Strategy
ESG reporting frameworks and regulations are still evolving around the world. But it’s clear that ESG investing is on the rise and will play an important role in the global energy sector for years to come.
Energy producers need a comprehensive ESG strategy to mitigate risks and plan for supply chain calculations. Sophisticated engineering contractors can support the strategy development in a variety of ways.
Primarily, your engineering provider should be:
- Equipped to implement Single source of truth (SSOT) refers to the practice of structuring information models and associated data schema such that every data ele… project execution models
- Have experience selecting technology and engineering efficiency-driven designs
- Be prepared to manage advanced ESG procurement data
If you need help developing an engineering plan to advance your ESG strategy, contact Vista today.