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The repercussions of energy insecurity are posing a major threat to the ESG agenda. Emissions reduction targets were already proving challenging, as global CO2 emissions peaked in 2021. Now, stakeholders are attempting to strike a balance between their ESG goals and the need for energy security.
Russia’s invasion of Ukraine has not only been an immense humanitarian crisis but has simultaneously thrown global energy markets into turmoil and made the task of reducing the world’s dependence on fossil fuels even more daunting. Unfortunately, as energy prices have skyrocketed around the world, everyone, from individuals, to companies, to governments, are feeling its devastating effects. The repercussions of energy insecurity are posing a major threat to the ESG agenda. Emissions reduction targets were already proving challenging, as global CO2 emissions peaked in 2021. Now, stakeholders are attempting to strike a balance between their ESG goals and the need for energy security.
How the energy crisis could HELP the ESG agenda
In a 2021 study published by the IEA, they indicated that “a massive surge in investment in renewables, energy efficiency and other clean energy technologies could drive declines in global demand for fossil fuels, on a scale that would as a result require no investment in new oil and gas fields” .The massive amount of revenue generated by the oil and gas sector (approximately $2 trillion higher than 2021 income) as a result of the energy crisis induced uptick in prices, could provide the boost that clean energy investment needs. Investing this surplus income into sustainable, low emission fuels “would fund all of the investment needed in these fuels for the remainder of this decade in the Net Zero Emissions by 2050 Scenario”. The current energy crisis is providing a unique opportunity for oil and gas producing economies to adapt to sustainability.
How the energy crisis could HINDER the ESG agenda
It may be tempting to focus all the attention on how the ESG agenda could benefit from the current energy crisis. Nonetheless, it would be naive to believe that this is the only potential outcome. The reality is, that it could very easily be on derailment. Governments could, in an attempt to assure energy security, begin to increase reliance and invest more heavily in fossil fuels. Sustainable investment specialist Sasja Belik warns of what lies ahead. “This winter could be much colder for millions of people,” he says. “Households struggling to pay fuel bills are angry, which is leading to policies aimed at insulating [consumers from rising prices] and boosting fossil-fuel production, however dirty.”
Investment in renewable energy sources is occurring at an accelerated rate. However, there will continue to simultaneously be continued investment in fossil fuel energy sources. The extent of continued investment, and the ability to meet the 2050 carbon reduction targets, will rely heavily on policy decisions and how governments choose to adapt with a long-term energy policy in mind.
The energy crisis has the potential to either help or hinder the ESG agenda. It is vital that the proper policies are put in place. Proper steps must be taken to ensure that we remain on track to minimize the threat of climate change. The three pillars of security, accessibility, and sustainability must be constantly accounted for and strived towards in the energy sector. This crucial point in time will be telltale for the future of the ESG agenda.
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