“ESG-oriented investing has experienced a meteoric rise. Global sustainable investment now tops $30 trillion—up 68 percent since 2014 and tenfold since 2004...the magnitude of investment flow suggests that ESG is much more than a fad or a feel-good exercise.” –McKinsey Quarterly Article on “Five Ways That ESG Creates Value”
The ESG movement is already changing the way utilities do business, and these changes are likely to be only the first ripples caused by this large and growing trend. ESG concerns are shared by regulators, investors, and consumers alike, and proactively addressing them will only grow more important with each passing year.
In this blog, we look at the ESG movement, what it is, and why it’s particularly critical for utilities. We conclude by explaining why the right analytics capabilities are essential for utilities seeking to continuously improve ESG-related performance.
What is the ESG Movement?
ESG stands for environmental, social, and governance. In short, the ESG movement is the growing trend of public interest in greater social responsibility for private enterprise. These factors may be understood as follows:
- Environmental: sustainability practices, including emissions, waste management, and energy use.
- Social: employee relations, diverse hiring practices, and human rights-related track record.
- Governance: robust corporate practices and procedures, diverse board and executive leadership composition, transparent political involvement, and lobbying practices.
As the demand for environmentally friendly, socially responsible investment grows, investors are increasingly seeking robust ESG assessments to quantify all these factors. A well-crafted ESG program should not only satisfy consumers, regulators, and investors, but create long-term value for businesses as well. McKinsey notes that “the overwhelming weight of accumulated research finds that companies that pay attention to environmental, social, and governance concerns do not experience a drag on value creation.”
An impactful ESG program can create value through:
- Improved top-line growth opportunities through improved government and consumer relations.
- Cost reductions from more efficient resource usage.
- Earning increased government support and strategic freedom.
- Improved employee morale, better retention, and enhanced talent attraction through social credibility.
- Smarter long-term asset investment—the ESG movement is here to stay, and now is the time to begin aligning long-term investments to this fact.
Looking forward, we expect utilities to be some of the organizations at the forefront of this movement. We explain why in the next section.
Why the ESG Movement is So Important for Utilities
Business leaders in nearly every industry imaginable are increasingly compelled to consider the implications of ESG-oriented investment. For several reasons, utilities will be particularly sensitive to this imperative:
- As a critical player in the energy system for households and businesses alike, utilities will be a focus of public demand for improved ESG practices.
- Many utilities feature dual private-public governance structures, and all of them are subject to local regulation, creating additional avenues for public pressure (and legal mandates) to improve ESG outcomes.
- Increasing pressure from investment groups and ratings agencies, who see ESG-related concerns as a potential long-term risk for utilities’ value.
In the face of this growing pressure, more and more utilities are pledging to take concrete steps to institute ESG practices.
An industry survey conducted by PWC found that:
- 91% report an uptick in ESG investments.
- 63% expect to reach net zero goals by 2050.
- 78% are already publishing a sustainability or ESG-related report.
- 44% have plans to tie executive pay to ESG goals.
While this aspiration is laudable, it is critical for utilities to recognize that it runs the risk of being purely performative without adequate supporting analytics. This same research from PWC found that data analytics challenges remain a key barrier to continued success, noting that “compelling ESG reporting requires collaboration and insights from across the organization, fueled by consistent and accessible data. Many still grapple with this part of the ESG equation. Consider that less than half of utilities report being highly capable of gathering ESG data (48%). Others are still learning (40%) or just beginning to learn (13%).”
How Analytics Play a Crucial Role Enabling ESG Practices
Robust, timely data collection is essential for maintaining transparency into ESG performance, and the right analytics are a prerequisite for creating substantive KPI’s that are achievable, impactful, and tailored to specific public concerns. UtilityDive notes that “consumers are alert to greenwashing” (performative ESG practices), and quantifiable metrics will only become more important to earning and safeguarding public trust.
A robust data pipeline is required to support key functions such as:
- Measuring how utilities are performing relative to sustainability metrics.
- Tracking environmental impact via factors such as carbon emissions, supply chain management, and energy usage.
- Evaluating investments based on not only top-line cost, but long-term environmental impact, prioritizing investments with, for example, the greatest emissions reduction per $.
Crucially, many of the same analytics capabilities needed to support enhanced ESG transparency can drive broader value for the utility. For a more comprehensive look at how real-time analytics can help transform utility operations, please see our guide here.
HEXstream has delivered utility analytics solutions for some of the largest utilities in North America. We help tackle challenges related to ESG and beyond, including real time data solutions, the interactive features needed to get the most out of them, and the underlying architecture needed to keep new capabilities reliably fueled with real-time data.
If you’re interested in learning more about how we can help track and achieve your ESG goals, please reach out to our team using the form below.
