Looking to the future of ESG

Looking to the future of ESG

The Natural Resources Forum, which is chaired by Director and Fellow Jonathan Blanchard Smith, held its third Annual ESG Week recently. ESG stands for Environmental, Social and Governance – the three key issues which have an increasingly greater importance in all aspects of a business’ life – whether improving its investment value, or ensuring it can attract good candidates into the company.

This year, the Week was extensively futures-focussed. Panels included discussions on decarbonisation, getting to net zero, battery technology, as well as on “The Future of Energy and Mining” and “ESG, Energy Transition and the Long View”.

The future focus this year was interesting and perhaps instructive. Whilst sessions of course covered current issues within ESG, including welcome panels on issues such as diversity and modern slavery, it was clear that new technologies and new approaches were foremost in the minds of attendees.

Some takeaways:

Net Zero is now mainstream. The UK’s Net Zero 2050 strategy seems to have been really successful in introducing both the idea of Net Zero, and the target date of 2050.  Whilst the strategy itself may be light on detail, it is high in ambition, and by giving both a name and a date, has moved the discussion on from hypothetical “we would like to” conversations to “what do we do by when” ones. There was far more practicality in this year’s discussions than before.

There is real concern about the availability of rare earths – the metals needed to power the transition. This is a market dominated at present by China, which controls up to 80% of the world’s supply –  a leadership once owned by America. Whilst the US government has recently begun to take steps to develop its own rare earth resources, and the EU is making steps to compete with China in Africa, it is not just a supply bottleneck that threatens the transition to net zero. We may run out of them entirely. Whilst this is contested, it is clear that both extraction and the 3-Rs (reduce, reuse and recycle) are both going to be vitally important in the future.

Resource nationalism is a growing concern. Russia’s invasion of Ukraine, as well as Covid-related supply chain disruptions, have shown how vulnerable industry is to the easy availability of raw materials – especially hydrocarbons, metals and basic foodstuffs. The development of resource sub-nationalism, where countries demand a greater share of the value of extraction on their land; and resource supra-nationalism, as countries seek to secure greater access to scarce resources, are complicating both politics and industry. In Europe, it is adding to pressures, especially in France and Germany, for the development of strategic autonomy.

Technology – carbon capture, energy storage, hydrogen and decarbonisation – continues to develop at pace. However, the promise of technology is often stymied by the time it takes to deploy it at scale, and whilst there are new and innovative approaches, many are still in the development stage. The bargain between a technology that currently exists and – whilst not ideal – at least meets some decarbonisation targets, versus a better technology in the future, seems still in debate, as companies and governments weigh up the benefits of investing now in a technology that can be deployed now, versus investing in new technologies in the hope they will be deployable in the future. There needs to be an increased focus on acting now, even if the technology is not ideal, rather than waiting.

Extractive industries understand ESG because they understand the need for a social licence to operate. Their operations frequently take place in developing countries, but their products are used in the developed world. In a year mercifully absent the egregious examples of ESG failures of the past, the focus is now on ensuring that the values embodied in ESG are fully realised at the point of extraction, not just in the boardroom. There is a problem here – industries based in heavily regulated countries will have good ESG functions – but they have to complete with companies based in less regulated countries, which are able to produce products more cheaply because they are able to get away with working practices that the West would find unacceptable.

And this leads to a problem for the entire industry, one perhaps best summed up as “No-one loves us and we do care”. Many extractives companies – certainly those based in the developed world – have excellent ESG programmes, but continue to suffer from being considered as dirty and exploitative. Demonstrators picket their offices. Their share prices can be depressed through the actions of activists. Companies can find themselves in newspapers and law courts on a regular basis. But the transition to net zero will not happen without metals, and metals come from the ground. Plastics come from oil. Europe is heated by gas. Companies would like to be recognised for the part they play, and for the efforts they are making.

Understanding the importance of the extractives industries, solving the issues of supply whilst avoiding resource nationalism, developing technologies both for the now and the future: just a flavour of the issues that the extractives industries will have to address now and into the future.

Written by Jonathan Blanchard Smith, SAMI Fellow and Director

The views expressed are those of the author(s) and not necessarily of SAMI Consulting.

Future-prepared firms outperform the average by 33% higher profitability and 200% higher growth. SAMI Consulting brings 30 years of experience delivering foresight, futures and scenario planning – enabling companies and organisations make “robust decisions in uncertain times”. Find out more www.samiconsulting.co.uk.

If you enjoyed this blog from SAMI Consulting, the home of scenario planning, please sign up for our monthly newsletter at newreader@samiconsulting.co.uk and/or browse our website at https://www.samiconsulting.co.uk

Image by Gerd Altmann from Pixabay

Leave a reply

Your email address will not be published. Required fields are marked *