The Urgency of Energy Transformation

Increasing climate awareness, evolving governmental requirements, and investor and stakeholder expectations are adding pressure to the urgency and complexity of energy transformation and management for organizations. As such, according to RMI, by 2021, half the world’s leading institutions and 40% of companies had made net-zero pledges.

While historical misconceptions regarding the cost of energy transformation abound, substantial data reveals these initiatives are key drivers to growth and profitability and energy transformation strategies have risen to the top of the C-suite agenda, joining profitability and growth.?In fact, surveys show sustainability is now a top ten objective for CEOs and a 2022 Mazars report reveals that 68% of businesses plan to increase investment in sustainability initiatives in 2023. Reinforcing these predictions, it is projected the coming decade presents significant opportunity for those organizations embracing the change and similarly significant risk for those who do not.

Investors are exerting pressure on companies to accelerate the energy transformation journey.?Research shows that companies that focus on driving societal impact through sustainability have?12.4% higher margins and upwards of 19% higher valuation multiples.?Additionally, they enjoy the “soft” benefits including recruiting and retaining talent, enhanced brand value, and increased levels of innovation, all of which help to address customer and stakeholder pressures.

Despite these urgent drivers, the World Economic Forum reports “progress on the economic development and growth dimension of the energy transition has been slow over the past decade." While prioritization of energy transformation drivers may vary across the corporate landscape, there are common challenges for organizations on this journey; identifying and prioritizing initiatives along the path is the key challenge for executives accountable for driving this transformation.

The journey for organizations to achieve their energy transformation goals is actively underway, yet most companies are struggling to keep pace with expectations.?In fact, the hurdles inherent in this journey put progress at high risk. In a recent Google Cloud poll of 1500 C-suite business leaders, 72% stated a desire to advance sustainability efforts but are struggling to chart a path to success. Frameworks for the transformation, such as the below guidance from RMI, are helpful in establishing direction and course but the complexity and scope of implementation challenges present intensive support and expertise requirements many organizations struggle to meet, despite investment and best effort.

The journey to corporate energy transformation spans a wide spectrum but can be organized into three main sequential phases:?establishing the foundations, initiating action and driving long term progress toward objectives.?Several junctures in this journey tend to account for stalling progress and while challenging, can, in fact, be overcome by incorporating learnings from companies further ahead in achieving their transformation goals.

Growth & Profitability

Despite assumptions that innovation and investment in sustainability will drive increased cost and reduce profitability, the journey to sustainability can parallel and help drive one to profitability. The Inflation Reduction Act is injecting urgency in the energy landscape, while renewable energy costs continue to fall, fueling momentum and competitive necessity for energy transformation. In fact, companies that meet ESG challenges in emerging markets are finding that positioning themselves as a sustainability leader unlocks growth opportunities.

Integrating Decarbonization into Energy Procurement to Optimize Energy Transformation

As with any strategic initiative, and as outlined by RMI’s Energy Transition narrative, establishing firm foundations are the building blocks for success.?Ensuring and aligning organizationally on a clear strategy for energy data and cost optimization, and establishing baselines for emissions and emissions reductions, are critical first steps in energy transformation maturity.

Leaders in energy transformation are striking a complementary balance to achieve their sustainability and procurement objectives. A wide variety of data sources, market intelligence resources and product structures provide energy executives with the tools needed to achieve cost optimization and risk management goals.?Further, clean energy procurement solutions such as Power Purchase Agreements (PPA), Virtual PPAs, and Renewable Energy Credits afford companies an avenue to manage their energy spend while delivering against their stated energy transformation objectives. ??

Scope 3 Emissions

Despite the overwhelming majority of emissions arising from Scope 3 sources, many organizations on the sustainability journey have fallen short of addressing Scope 3 emissions for varying reasons. Scope 3 emissions comprise more than 70% of emissions but only 25% of organizations are actively addressing this concern. ?Various obstacles prevail in this domain including complexity and integrity of relevant data, inability to source data and the challenges of cross-organizational collaboration to forge a collective path to disclosure.

Join our Upcoming Webinar:?The Urgency of Sustainable Sourcing

Successful achievement of energy transformation is an increasingly strategic and urgent imperative for organizations to ensure competitive advantage, address customer and investor pressures, and meet regulatory requirements.?While the journey is ambitious, resource-intensive and may be fraught with complexities, engaging guidance to optimize the journey will support the growth, profitability and sustainability advantage aligned with strategic goals.

Learn about Implementing and Managing Successful Corporate Sustainability

Look forward to more in-depth coverage on this critical journey in our next newsletter. Thank you for engaging in the conversation…we look forward to learning from you and incorporating your insights!