Why is ESG Important for High-Energy Businesses?

As the world becomes more aware of the impact companies can have on the planet and society, investors are looking beyond the financial returns and considering the ESG performance of the companies they invest in.

But what is ESG and why is it important? In this blog, we will explain everything ESG-related including what ESG means, its importance, common strategies, and potential ESG issues that high-energy companies may face.

ESG Explained

ESG refers to the three factors used to assess how a company performs in terms of sustainability and ethics, which include:

E: Environmental considers how a company's operations and practices impact the natural environment. For high-energy businesses, this could involve their carbon footprint, energy efficiency, waste management, and renewable energy usage.

S: Social looks at how a company treats its employees, community, and other stakeholders. In high-energy sectors, this can involve worker safety, community engagement, diversity and inclusion, and supply chain ethics.

G: Governance factors assess how a company manages relationships. It focuses on transparency, accountability and leadership. This includes board diversity, executive pay fairness, anti-corruption policies, and shareholder rights.

ESG is a framework that helps investors and consumers make informed choices concerning a company. It considers not only financial performance but also societal and environmental impact.

Based on these factors, companies receive ESG scores from 0 to 100. A score above 70 would be good and below 50 would be considered concerning. So, why is this even important in the long run?

Why Are ESG Factors Important for High-energy Businesses?

ESG matters for high-energy companies because of their huge environmental effects. They face greater scrutiny and regulatory challenges, resulting in a need for stronger sustainability measures.

Failure to address ESG concerns may lead to reputational harm, increased operating expenses, and increased exposure to financial risks, which can impact their long-term success. If a company prioritises ESG, they can experience the following advantages:

• Stronger brand reputation and brand value.
• Increased competitiveness.
• Reduced regulatory, supply chain, and climate-related risks.
• Better access to capital.
• Increased adherence to evolving environmental and social regulations.
• Stronger chance of attracting, engaging and retaining top talent.

Challenges of Implementing ESG in High-Energy Businesses

While the benefits of ESG are clear, implementing these practices in high-energy businesses comes with challenges.

High Initial Costs

Transitioning to renewable energy sources or implementing new waste management systems can involve substantial upfront costs. For businesses operating on tight margins, this can be a significant barrier.

Complex Supply Chains

High-energy businesses often have complex supply chains, making it challenging to ensure all suppliers adhere to ESG standards. This requires robust monitoring and collaboration across the supply chain.

Technological Limitations

Some ESG solutions, such as carbon capture technology or energy-efficient equipment, may still be in the early stages of development or costly to implement. Businesses need to balance the benefits with the costs and feasibility of these technologies.

Resistance to Change

Like any significant shift in business practices, implementing ESG may face resistance from within the organisation. Change management strategies and clear communication are vital to overcoming this resistance.

ESG Strategies for Successful Integration

To overcome these challenges and reap the benefits of ESG, high-energy businesses can adopt several sustainable practices into their ESG strategy to set themselves apart. These ESG practices can include:

Conduct a Current ESG Assessment

This helps identify areas of improvement and set measurable targets based on the business’s current performance. It helps to give the company something to work towards.

Engage Stakeholders

During your ESG strategy, engaging stakeholders at all levels is vital. This includes employees, investors, customers, and the community. Listening to their feedback and involving them in ESG initiatives builds buy-in power and ensures the initiatives are relevant and impactful.

Integrate ESG into Decision-Making

ESG considerations should be integrated into the company's core decision-making processes. Whether evaluating new projects, selecting suppliers, or setting executive compensation, ESG factors should be a fundamental consideration.

Invest in Innovation

Innovation is often required to improve ESG ratings. High-energy businesses should invest in research and development to explore new technologies and practices that align with ESG goals. This could lead to cost savings, efficiency improvements, and new revenue streams.

Improve Your ESG Score for Increased Opportunities

By utilising ESG factors and making smart ESG investments, like research and development, companies can improve their reputation, mitigate risks, access capital, comply with regulations, attract top talent, drive innovation, reduce environmental risks, and gain a competitive advantage.

While there are challenges in implementing ESG, the benefits far outweigh the costs. With a thorough ESG strategy in place, high-energy businesses can thrive in a rapidly changing world while making a positive impact on society and the environment.

If you are a business owner looking to improve your ESG score, our passionate team at Balance Power can help. We specialise in renewable energy projects that contribute towards a carbon-zero future.

If you’re interested in getting involved in one of our solar or wind energy projects or would like to know how you could benefit from our private wire energy facilities, contact us today at enquiries@balancepower.co.uk.