OpEd: There is no quick fix to electricity and gas prices

By Patrick Gibbons, Partner, Orizontas

When Orizontas publicly launched in March, one of the first issues we publicly wrote about was the impact of Russia’s invasion on Ukraine on energy security and the implications for the ESG community. 

We observed that the upheaval in global energy markets had reinforced the importance of fossil fuels while our global economies transition and that it would be a mistake to consider this a short-term blip. As a result, this has raised very real challenges for ESG practitioners trying to reconcile the emerging world with the assumptions they had previously held.

As we noted, “(T)he greatest risk for companies in the current environment, is that trade-offs will become more pronounced, and if not properly understood, articulated and managed, create a significant risk to both operations and reputation.”

Over the past three weeks, a new conversation has emerged publicly which goes to the heart of this problem. 

Most prominent of these was Stuart Kirk’s speech at the Financial Times Moral Money Summit – Why investors need not worry about climate risk – in which he made four key points:

• climate change impacts are long term, but some financial institutions, central banks and consulting firms are overstating their actual extent;
• economies will continue to grow;
• adaptation is cheap and effective; and like wars, pandemics, financial and energy crises, climate change is not a long term financial risk.

The speech garnered a wide range of responses, from calls for him to be sacked to others welcoming a few home truths,

Irrespective of people’s views, Andrew Edgecliff-Johnston writing in the Financial Times notes Kirk’s scepticism is part of a broader concern within the financial sector about ESG and how it is being implemented and used. 

These are being played out in North America and Europe, where the energy realities thrown up by Russia’s invasion of Ukraine have seen long held energy policies questioned, and in some cases, overturned. It’s where energy and emerging food shortages have the potential to cause significant unrest across the Middle East, Asia, Africa and Latin America.

At the risk of making predictions, Australia is also entering a similar phase. 

Electricity and gas prices are at record levels, and there are no quick fixes. The impact on Australian businesses struggling to remain competitive is all too real, as it is on household budgets.

This winter many Australians will have to make choices about whether to heat their house or go without household staples and other essentials. This will be a major political challenge for all governments. 

How business respond to this is critical.

It is one thing to promote a company’s ESG position, it’s another to genuinely understand there are real world implications. Misunderstanding these could profoundly damage hard-won reputations.

Orizontas can help you navigate what is now an increasingly difficult ESG landscape.