ESG (Environmental, Social, and Governance) in Power – Thematic Research

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Managing environmental, social, and governance (ESG) issues are critical for power companies in 2021. Not only are investors, customers, and other stakeholders demanding lower carbon emissions, but companies that are not taking a holistic approach to sustainability will also fall behind. Events in 2021 have shown that those power companies without a credible ESG plan will face a backlash in the courts, boardrooms, and the public arena. This trend will intensify in the coming decade. Power companies bear much responsibility for climate change and its resulting social effects. Those that can prove they are doing something about it – not just greenwashing – will emerge as leaders.

What are the main trends shaping the ESG theme in the power sector?

Technology trends

The technology trends include hydrogen, carbon capture and storage (CCS), electrification, energy storage, and renewables. Hydrogen remains the most abundantly available and commonly known element in the universe. It will become a game-changer by being the source of cleaner power (zero-emission fuel) on a massive scale. Hydrogen is light, storable, energy-heavy, and does not produce direct carbon emissions or greenhouse gases (GHGs).

CCS technology is a potential answer to global carbon emission concerns, as it prevents the release of large amounts of CO2 emissions into the atmosphere from fossil fuel power plants. CCS technology comprises a three-step process where anthropogenic CO2 emissions are captured, transported, and stored in deep geological formations to prevent the release of hazardous gas into the atmosphere.

A key enabler of a decarbonized future is the universal provision of access to electricity. One of the UN’s Sustainable Development Goals (SDGs) posits that, by 2030, all populations worldwide should have access to electricity. As of 2019, 90% of people in the world have access to electricity, but this figure is only 46% in sub-Saharan Africa, according to World Bank data. Over 800 million people still do not have reliable access.

Energy storage systems (ESS) are used widely for storing energy intended for use later. ESS technologies can help manage power during peak load periods, enabling energy management, providing bridging power, and enhancing the quality and reliability of power. It also facilitates the integration of distributed renewable energy sources into the grid, which can be used to meet the demand.

It is expected that by 2030, almost 40% of the global demand will be powered by renewables. The trend over the next 10 years shows an increase in renewables due to increasing investments in clean technologies. From 2024 on, renewables are projected to lead the mix, overtaking coal-fired power generation.

Macroeconomic trends

The macroeconomic trends include the declining cost of renewables, diversification to manage emissions risk, environmental taxes, and sustainable financing through regulated taxonomy. The cost of renewable energy declined exponentially in the late 2010s and into the 2020s. Primary reasons for the decline include technological advancements and large-scale deployment. Despite the COVID-19 pandemic, in 2020, more than 260 GW of renewable energy capacity was added globally. This expansion can be explained by price competitiveness supported by favorable government policies.

The global effort to transform the power industry to more sustainable energy production based on renewable energies is already underway. It is driving the urgent need for divestment and diversification among utilities. Power companies are trying to maintain a strong operating and financial performance. They are also focusing on improving the quality of people’s lives and addressing environmental problems guided by the principles reflected in the UN’s SDGs.

Globally, governments have imposed various regulations on utilities related to air, water, and waste. Violation of these laws results in hefty penalties and, in some cases, cancellation of licenses. The additional cost aims to reduce emissions by motivating utilities to seek cleaner energy.

Considering ESG aspects while making investment decisions is a crucial trend being adopted across the power sector. It motivates investors to invest in sustainable themes. Recently, financial support for economic growth, taking into account social and governance factors, can be seen in the context of EU policy

What are the ESG challenges in power sector?

Environmental challenges

Environmental challenges include greenhouse gas emissions and pollution. Electricity generation is one of the primary drivers of climate change, with much of the industry reliant on carbon-intensive forms of generation. Fossil fuel generation is also responsible for significant pollution, such as air pollutants from coal-fired generation. The increased atmospheric concentration of greenhouse gases, such as carbon dioxide (CO2), traps heat from the sun and causes global temperatures to rise. The world has warmed by around 1°C since pre-industrial times, according to the International Panel on Climate Change (IPCC).

Wherever fossil fuels are burned, pollutants are released. Coal combustion is responsible for significant amounts of pollutants, including sulfur dioxide (SO2) and nitrogen oxides (NOx), which react with water and oxygen in the air to form acid rain. SO2 and NOx have detrimental effects on human health, including respiratory diseases, childhood asthma, and cardiovascular ailments. The World Health Organization estimates that 4.3 million deaths per year can be attributed to air pollution due to stroke, heart disease, lung cancer, and chronic respiratory diseases.

Social challenges

Social challenges include job insecurity and community impact. Approximately 40 million people are directly employed in the oil, gas, coal, renewables, bioenergy, and energy network industries globally. In the IEA’s pathway to net-zero carbon emissions by 2050, the agency estimates that by 2030 clean energy employment will have increased by 14 million, and oil, gas, and coal fuel supply employment will have fallen by 5 million. While this represents a net growth of 9 million jobs in the energy industry, many communities are reliant on fossil fuel jobs.

Various indicators suggest that around the world, socio-political acceptance of new renewable projects is high. Communities are aware that low-carbon energy is beneficial and would like to see their country’s energy mix reduce its carbon footprint. Policymakers are also likely to support low carbon energy due to its popularity. Successful implementation of such projects requires effective frameworks that engage not only markets and policymakers but also local communities.

Governance challenges

There is a sharp focus on the governance of power companies in 2021. More than ever, stakeholders, and the public more broadly demand that power companies take responsibility for their environmental impact. Investors are shunning companies that do not seek to improve green credentials, and social movements around climate change are informing populations about the effects of ever-increasing carbon emissions. Power companies have also been a target in the growing trend of cybersecurity attacks. The management of these risks should be high on the agenda of executives in the power industry.

Which are the leading companies focusing on ESG theme in power sector?

Leading power companies focused on ESG include Iberdrola, EDF, Orsted, Vestas, NextEra Energy, Enel, NRG and National Grid.

Market report scope

Outlook Year 2021
Key Players Iberdrola, EDF, Orsted, Vestas, NextEra Energy, Enel, NRG and National Grid

This report provides an in-depth analysis of the following. It provides:

  • GlobalData’s ESG framework which contains contributing factors to environmental, social and governance issues, with mitigating actions for each issue.
  • Technology and macroeconomic trends in the power industry. Certain technologies are enabling power companies to improve their ESG credentials and macroeconomic forces are compelling them to rethink ESG strategy.
  • GlobalData’s ESG action feedback loop describes how stakeholders are demanding action on ESG and the effect this has on company disclosures.
  • ESG challenges currently faced by those in the power industry and how companies can address them.
  • Case studies on ESG leaders and laggards in the power industry.
  • Detailed assessment of leading power companies and their competitive positions in the ESG theme.

Reasons to Buy

  • Develop long-term ESG strategies by identifying your company’s contributing factors then employing our recommended mitigating actions.

  • Protect against risk by exploring ESG challenges in the power sector, equipping your company with the knowledge of how to combat future ESG tests.

  • Identify current leaders in the power industry. Use this report’s assessment of current players in the power industry to inform potential investments or partnerships.

  • Avoid ESG failures and follow in the footsteps of ESG leaders by incorporating our case studies into your strategy.

  • Benchmark your company against competitors and justify key areas of investment by using GlobalData’s thematic scorecard, which ranks the top 40 power companies globally on the 10 most important industry themes.

Dominion Energy
Duke Energy
General Electric
National Grid
Southern Company
Xcel Energy

Table of Contents

Executive summary 3

GlobalData’s ESG framework 4

Contributing factors and mitigating actions 5

Trends 6

Technology trends 6

Macroeconomic trends 8

The ESG action feedback loop 10

ESG challenges in power 11

Environmental challenges 11

Social challenges 15

Governance challenges 18

Case Studies 20

Environmental 20

Social 21

Governance 21

ESG timeline 23

Companies 24

Sector scorecard 28

Power utilities sector scorecard 28

Glossary 31

Further reading 36

Our thematic research methodology 37

About GlobalData 39

Contact Us 40

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