Energy companies need to treat climate change and government regulation as two sides of the same issue

Energy, utilities and resources (EU&R) companies are miles ahead of other industries in terms of climate action, and yet there is still much further to go. In 普华永道 latest Global CEO Survey, EU&R leaders are far more likely to say that their companies have taken action across a range of climate initiatives, from improving energy efficiency in their own operations to protecting physical assets to selling products that help customers become more climate-resilient. The differences are sizable, with response rates among EU&R CEOs that are 10 to 15 percentage points higher than for the overall global sample of CEOs.

Moreover, EU&R CEOs are far more likely to recognise the impact that climate change is having on their business model: 36% say that climate change has driven changes to the way that their company creates, delivers or captures value over the past five years, and 48% say climate change will drive similar changes to the business model over the coming three years. (The response rates for the global sample of CEOs were 22% and 30%, respectively.)

Yet climate change doesn’t exist in a vacuum. It is inherently linked to another topic on the mind of EU&R CEOs: government regulation, which is an even bigger factor in terms of business model reinvention. More than half of EU&R CEOs (53%) say that government regulation has driven business model reinvention over the past five years, and 58% say that it will drive changes over the coming three years (compared with 42% and 47% for the global sample).

Consider the recent—and expected—announcement from the US Securities and Exchange Commission that standardizes and enhances the rules regarding climate-related disclosures for publicly traded companies in the US. Similar measures are already in place in other regions, including the EU.

For large global EU&R companies, climate change actions and policies and regulation are inherently interrelated, with both issues complicating each other. That’s why it’s an especially tough operating environment for large, global entities, which must navigate a patchwork of expectations and requirements in different jurisdictions around the world. Move too fast on climate issues, and you may put yourself at a competitive disadvantage in some markets. Move too slowly, and you risk compliance or expectation issues in others. All while the rules and standards across geographic markets keep changing at different rates.

Successfully managing this kind of complexity requires addressing climate and government regulation in an integrated way, starting with three specific priorities.

Engage directly with end customers. Regulators are setting specific minimums in areas such as renewable energy. But EU&R companies will have a much better sense of demand if they engage with customers to understand true demand for different types of energy—how much, and how soon, and importantly when and where. This kind of direct engagement can not only help EU&R companies gauge demand more accurately than government requirements—it can actually shape demand.

Collaborate across borders. Global companies need to look beyond any one jurisdiction and partner with peer entities in various markets. In that way, they can engage governments more directly to shape future regulations.

Improve scenario planning with a multi-disciplinary approach. Last, upgrade your forecasting and scenario planning, considering a wider range of risks and potential outcomes. That entails getting stakeholders from different functions to work together—sustainability, regulatory compliance, public affairs, and commercial teams, all bringing their unique perspectives.

Climate is tough, regulation is tough, but addressing them in isolation makes each challenge harder. By taking an integrated approach, EU&R companies can reduce the complexity inherent in these issues—and create a more sustainable future for the planet.