By Yasmine Nina Benhalima, EducNation Club
A crisis is a period under which societal issues are brought up to the surface. The Great Lockdown crisis is a very good example of this since the world is now facing a myriad of challenges – inequalities, digital gap, and climate change. At both the macroeconomic and microeconomic level, an energy transition strategy should be implemented to effectively cope with this challenge and at the micro-level, oil and gas companies are facing the following problem: how can they define a sustainable strategy, i.e., a strategy that allows them to meet their financial profits objectives while having a societal value?
It is worth pointing out that now oil and gas companies have to take into account ESG principles in their strategies. ESG principles are defined as the following: ESG stands for Environmental Societal and Government, the criteria are a set of standards for a company’s operations that investors use to screen investments. In 2006, the ESG movement was geared up in 2006 after the launch of the UN Principles for Responsible Investment (UN PR) and the COVID19 crisis has only accelerated this trend.
ESG is here to stay, so oil and gas companies will need to set a strategy that allows them to be in line with ESG principles and to recover from the crisis. Indeed, it should be recalled that the sanitarian crisis has acted as a double whammy with an economic crisis generating, in turn, an oil price crash. However, notice that the price crash was also the fruit of Saudi Arabia unexpected price discounts of $6 to $8 per barrel to customers in Europe, Asia, and the USA and which then triggered a free fall in oil prices with brent crude falling by 30 %. In addition, this strategy should allow them to keep pace with the energy transition and to remain successful and sustainable over the long run.
So, what kind of strategy could energy companies implement? The strategy should be a long-term one split into three phases: recovery, transition, and sustainability.
To recover, the priority will be to stabilize revenue and cost streams. Those companies will need to innovate, and the key will be technology. Oil and gas companies will need to embrace new technology because digitalization will be key to higher productivity and lower costs. But to have an efficient digitalisation, data collection and data analysis should be the main focus of the strategy so as they can take optimal data-driven solutions. It is also crucial that companies train their employees and hire innovative minds to cope with the transition.
To operate the transition, companies will need to focus on achieving net-zero carbon emissions by 2050 and align the strategy with the Paris agreement. They will need to progressively invest in renewable energies such as solar and wind plans so as to reduce investments in fossil fuels. There is also the possibility to cut edge green energies such as hydrogen and this is a trend to watch over the coming years.
Change is happening at lightning speed, so over the long haul, companies will want to become innovators and remain innovators. Therefore, investing in R&D is going to play a crucial role in their survival as it will help them harness the digitalisation process and remain competitive.
Regarding ESG challenges, oil and gas companies have been taking the steps to curb the environmental impact but are important that they focus on societal and governmental goals as well such as ensuring employee health and safety. Finally, companies should include a full set of metrics in their corporate and financial reporting to monitor their commitments and to stay transparent in order to avoid greenwashing, which is defined as companies’ practices and organization that misleads consumers about green credentials. This should be avoided in all ways and one effective way to do so is to have a crystal-clear communication with internal communication, i.e., within the organisation and external communication, i.e., with investors and other shareholders will be crucial.
Climate change is now the world common challenge for oil and gas companies, those will need to implement a sustainable strategy that sustains competitive advantage in order to remain successful and bring societal value over the long haul.
Disclaimer: The content is purely informational
