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Proposed SEC Climate Disclosures Strengthen ESG for Energy Sector


The energy industry, like all industries, faces the possibility of new carbon emissions disclosure standards.

The climate-related disclosures proposed by the Securities and Exchange Commission would strengthen the environmental, social and governance (ESG) focus in the industry. The proposed rules come as U.S. executives in the 2022 KPMG US CEO Outlook Pulse Survey identified changing regulations (25%) and lack of standard metrics. (19%) as the biggest challenges to implementing their companies’ ESG strategies this year. In the long term, survey respondents identified the complexity of supply chains and the lack of appropriate technology solutions as the biggest barriers to achieving net zero.

The new SEC proposal, if adopted, will lead energy companies to leverage new data, tools, technologies and skills to integrate ESG into all facets of their business at a deeper level. In our conversations with business leaders, it is evident that many leaders see ESG as an opportunity to build trust with all stakeholders and deliver greater value. Studies show that companies with higher ESG scores are more likely to perform better with less risk.

Here are five ways leaders can embrace ESG to launch a new era of innovation:

Build robust reporting capabilities to measure progress and inform strategy. From setting starting points to measuring progress, data is critical to gaining insights that fuel transformation. The lack of appropriate technology solutions can be one of the biggest barriers to realizing ESG ambitions, but future-proof digital solutions can unlock new market value, with innovation in mind.

As technology continues to improve, artificial intelligence and machine learning tools can collect and aggregate ESG data, automating tasks like filtering and sentiment analysis. Because standards can vary from region to region, reporting capabilities must be dynamic to keep up with the changing regulatory landscape. Additionally, performing a function-based analysis in addition to an organization-wide analysis can highlight areas where additional investment is needed. Monitoring how data is collected and processed is key to tracking progress.

Map operational inefficiencies to capture unrealized value. By assessing gaps, risks and opportunities, leaders can integrate ESG strategy into operations with an understanding of the implications for the workforce, supply chain, operations, technology, infrastructure and Moreover. Map operations and identify ESG risks — including environmental risks such as climate change; human rights issues; and diversity, equity and inclusion – will drive innovation to pave the way forward.

Building agile and sustainable supply chains that remain resilient despite disruptions. The transition to net zero can affect a company’s entire supply chain, requiring a future-ready solution. Decarbonizing complex supply chains can be a significant barrier to achieving ESG ambitions, and leaders need to be innovative in their solutions. A diversified energy supply and a mix of sources is essential so that economies do not become too dependent on single or limited sources of supply. Supply also impacts the four key energy pillars: sustainability, availability, reliability and affordability.

Integrating cybersecurity transparency into the ESG approach. The ESG imperative expands responsibility for good governance and risk management to include a focus on cybersecurity, data privacy and data ethics. For large enterprises, vulnerabilities to cyberattacks must be addressed to ensure responsible and sustainable innovation. Embracing transparency can promote digital trust while providing a window into general corporate behaviors that underpin ESG.

Ensure the preparation of reports. When it comes to measuring ESG, companies will want to understand if they have the capabilities to provide measurable data and reliable reporting. To understand whether they have such capabilities, they will need to consider the sophistication of controls and procedures they would need to achieve reporting objectives. Better reporting capabilities can also produce secondary benefits, such as improved ROI and operational performance. This could also result in a comparatively lower cost of capital compared to peers with lower ESG ratings.

Additionally, ESG will require ongoing literacy efforts. Energy executives should be prepared to discuss in detail how their ESG strategy is achievable. It is essential to educate customers, investors, employees and other stakeholders about their institution’s current actions to mitigate carbon emissions.

With an ESG lens applied to strategic decisions, energy companies can lead the transition to netzero and build trust with key stakeholders: investors, employees and regulators.

Julie Luecht is Managing Director of KPMG’s Houston office and Steve Estes is KPMG’s Country Head of ESG Risk Assurance.