4 Business Benefits of Incorporating Sustainability for Energy Companies
For years, businesses have been under mounting pressure from consumers, investors and governments alike to become more sustainable. More than 70 countries have now implemented Emissions Trading Systems (ETS) and/or carbon taxes – accounting for approximately 25% of global greenhouse gas (GHG) emissions. Earlier this year, shareholders in publicly traded companies proposed a record number of resolutions asking companies to address environmental, sustainability and governance (ESG) issues. Even our own Consumers Unmasked: Stage 4 revealed that consumers crave more sustainable options from businesses.
With all of these pressures converging, sustainability is no longer a “nice-to-have” for modern energy companies but a strategic imperative. But while traditional wisdom might suggest that the only benefit of ESG is for complying with these pressures, a wealth of opportunities lie before those who incorporate sustainability into the fabric of their business strategy. Below, find the top benefits that businesses can expect by making sustainability a core pillar of their overall strategy.
1. Increased Revenue
As noted in our study, consumers strongly desire affordable sustainability options. This is proven in their behaviors time and again. For example, the International Energy Agency's recent report reveals a surge in electric vehicle (EV) sales as their prices have lowered. Despite a shrinking global car market, EV sales surpassed 10 million units in 2022, representing a remarkable 55% growth compared to 2021.
Other reports also indicate that companies embracing ESG principles enjoyed higher revenues, stronger profit growth and improved access to financing. Companies prioritizing ESG saw a revenue increase of 9.7% compared to only 4.5% for those that failed to give it the necessary attention. ESG-focused companies also achieved an average revenue growth of $2.1 trillion in the US, $930.5 billion in Europe and $58.8 billion in Australia – and businesses prioritizing ESG experienced a remarkable average profit increase of 9.1%.
Taking these insights into account, forward-thinking energy companies should prioritize introducing economical, sustainable products and services on the market to introduce new lines of revenue and improve loyalty among consumers.
2. Cost Reductions
Prioritizing sustainability can not only help businesses boost revenue, but it can also help them cut costs as well. One study highlights that most companies experience significant cost savings as a primary benefit of sustainability, likely as a result of innovation focused on resource recovery and product life extension.
One recent example of this is digital twin technology, which has helped businesses in a variety of sectors optimize processes and lower costs. At the inception of the implementation of GE's Predix and digital twin technology in 2018, industry experts predicted that the wind industry could save as much as $1 billion in operational and maintenance costs over the next decade through advanced and widespread adoption of these digital solutions. Recently, Verizon has shown just how effective digital twin technology can be, realizing savings of over $100 million per year by using network digital twins to build energy consumption models.
By embracing and integrating modern technology and solutions as they emerge, businesses in the energy sector can continue to unlock new cost savings opportunities.
3. Enhanced Market Value
The sustainable investing market has experienced significant growth in recent years, up from managing $1.9 billion in assets at the end of the 20th century to an estimated $37.8 trillion in assets under management as of April 2022, according to a recent Bloomberg study. Companies prioritizing renewable energy utilization and development are excelling in market value, in part thanks to alignment with current environmental sentiment. Enphase Energy exemplifies this trend with remarkable stock growth of over 3,000% in the past five years.
Other market indicators, like indexes tracking sustainability-focused companies, continue to indicate that businesses focusing on ESG initiatives are outperforming the larger market.
4. Investment Opportunities
Recognizing the significance of sustainability, companies are actively leveraging this trend by investing in sustainable assets, such as start-ups, private equity and venture funds. By aligning financial objectives with environmental and social sustainability, organizations can mitigate risks and potentially achieve attractive financial returns, all while effectively diversifying investment portfolios.
Additionally, some segments of the renewable energy sector have seen remarkable reductions in cost in recent years. The UN’s Human Development Report indicates that the costs for large-scale solar photovoltaics decreased by 89% between 2009-2019. These significant cost reductions – along with improved revenues – in just a decade underscore make businesses more attractive to investors as it proves they can earn substantial profits from the rising market value of renewable energy assets.
The Intersection of Positive Impact & Profitability
As the world confronts growing environmental challenges, companies have an opportunity to secure market share and thrive in an era where environmental responsibility takes center stage. Those that effectively embrace sustainability will not only contribute to environmental responsibility but also gain a competitive edge in the market.
Ultimately, by embracing ESG principles, companies can become catalysts for positive change, securing long-term success and creating a more sustainable and prosperous future for all.
