ESG Reporting Insights: Energy and utilities

Investors are paying closer attention to how energy and utilities companies manage a range of environmental, social and governance (ESG) factors. Greenhouse gas emissions, nature and biodiversity matters, Indigenous relations, workplace health and safety, and workforce diversity and inclusion are among the sustainability factors that are often intertwined with a company’s operational performance. Additionally, they’re often top-of-mind for a wide group of stakeholders—including regulators, who are taking notice of rising investor expectations for complete and comparable ESG information.

We recently analyzed the sustainability reports and other disclosures of Canada’s top energy and utilities companies, as well as businesses from other sectors. Across all industries, we found that many companies’ disclosures fall short of what’s required to meet new regulatory requirements and the climate change reporting expectations of stakeholders. But we also saw sector-specific opportunities for organizations to build trust with stakeholders and increase their long-term enterprise value.

Many energy and utilities companies have facilities that are exposed to physical climate risks as floods, fires and other forms of extreme weather become more frequent. They’re often also exposed to transition risks such as carbon pricing mechanisms as changing public sentiments and evolving regulations aimed at creating a lower-carbon economy could undermine some of the industry’s traditional business models.

The industry understands that their stakeholders expect them to play a part in the energy transition. Falling short of these expectations can carry significant reputational risks. This is reflected in the importance that many companies place in producing trusted, high-quality ESG disclosures—notably in governance and assurance. Several energy and utilities companies are among the early movers that are preparing for mandatory assurance requirements and are already advancing from limited to reasonable assurance over their ESG metrics.

Growing demand for energy produced from cleaner and renewable sources is a large business opportunity for the industry. Not only can companies take a leading role in making their own cleaner energy future a reality by meeting imminent demands for more—and greener—power, but they can help customers, communities and society achieve their own goals as well. Many energy and utilities companies are setting decarbonization targets that include attributing a set percentage of revenue growth to renewable energy.

We’re also seeing companies taking a closer look at workforce-related ESG matters. While employee health and safety is a long-standing industry priority, some companies are also looking at how their approach to workforce inclusion and diversity affects their ability to attract and retain employees.

Organizations that view their sustainability strategy as a component of their corporate strategy can better understand how ESG factors affect their operational performance. Energy and utilities companies that set and measure their progress against emission, water usage reduction and other ESG targets can articulate to investors and other stakeholders how their sustainability strategy is creating value for the company, customers and the communities in which they operate.