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October 13, 2021

Written by: Paul Sakrzewski

Webinar Recap: ESG and Asset Management

Sustainability is top of mind for many organisations, but the path to achieving Environmental, Social, and Governance (ESG) objectives is not always so clear. Whether driven by shareholder requirements, new policies such as commitments to carbon reduction, or increasingly conscious and demanding consumers, ESG adds complexity and intensifies the scrutiny around decision making. The bottom line: organisations must strike a balance between meeting existing business commitments and delivering on increasingly important ESG-driven outcomes. Doing so requires a methodology for valuing individual initiatives in those new terms and generating the optimal combination of alternatives and timing.

In a recent webinar hosted by Smart Energy International, a panel of industry experts came together to discuss how the core principles of asset management can be applied to ESG decision making. Speakers included:

The growing pressure around ESG targets and reporting presents both significant challenges and opportunities for asset managers. The challenges arise from the need to consider a wider range of criteria when making asset-related decisions. But therein also lies the opportunity: modern asset management is perfectly aligned with the requirements of ESG compliance, and the ISO 55001 asset management standard contains great guidance on how to tackle the ESG challenge.

If you put together the requirement for ESG and sustainability, with a focus on asset management, our very success depends on how we can deliver successful outcomes through our asset management.

Ryno Verster
General Manager, Asset Strategy & Investment
Powerco

Across all industries, every organisation has its own unique view of what “value” means to the organisation and its stakeholders. However, that definition is constantly evolving as the business world progresses and expectations change. Whereas purely financial objectives are more easily quantified and measured, new goals related to the energy transition, grid modernisation, and climate resilience are more challenging to express in tangible terms everyone can agree on. Boudewijn explained that Copperleaf is helping clients expand their decision-making frameworks to compute “value” to incorporate more criteria that can materially affect the organisation and its stakeholders, including ESG criteria. Building the methodologies for calculating these additional sources of value can be a daunting task if starting from scratch and it’s therefore fortunate that there has been a lot of thinking put into this already by various organisations around the world. The Copperleaf Value Framework Library already has over 200 models that help clients assess the value of potential projects from a variety of different angles—including ESG.

Regulators and standards organisations are also pushing for more rigorous reporting on ESG indicators. Within the next two years, the International Financial Reporting Standards (IFRS) will likely require organisations to report on ESG targets in the same way as they currently have financial targets. Currently, many organisations struggle to report ESG outcomes to their stakeholders. Boudewijn offered insight into how to get started on this critical step, and pointed to resources from international organisations such as the VRF (Value Reporting Foundation) and GRI (Global Reporting Initiative), which offer databases with hundreds of ESG reports from leading global companies and industry-specific reporting templates.

Sandy provided an insider’s account of how the Australian mining industry is facing challenges related to both the social and environmental aspects of ESG. He described a recent situation where social values were not considered properly, resulting in the destruction of Indigenous heritage sites and leading to widespread condemnation and reputational damage within the community at large. Environmentally, as one of the largest consumers of fossil fuels, the mining industry is also facing increasing pressure to meet carbon emission targets. As stakeholders push for greater transparency and disclosure of the plan to achieve net zero, organisations will need a consistent way to value investments in new, innovative technologies versus more traditional, well-understood projects—to balance costs, benefits, and risks.

In the utilities space, Ryno outlined how his organisation is striving for an optimal balance between looking after its people, the planet, and profits. Powerco includes sustainability goals as part of its corporate principles, and Copperleaf plays a role in helping Powerco assess the value of projects based on how they contribute to these goals—providing a clear line of sight between corporate objectives and day-to-day operational decisions. Ryno also added how the ability to consider cost-benefit trade-offs and prioritise projects are vital to ESG decision making—adding a line of control to the line of sight. In the following video clip, Ryno expands on how Copperleaf helps Powerco drive its ESG strategy:

When it comes to getting agreement across the organisation about ESG targets and strategies, David explained how Endeavour Energy is focusing on the economics and shifting the focus from the outputs to the underlying assumptions by asking questions like ‘What are we missing from the equation? Why is it not stacking up the way that everyone believes it should?’

We’ve been having these conversations at the board level and they’ve been asking questions like, “What are we doing in this space? How do we improve things?” And challenging the organisation to make sure that we’re thinking about things differently, to make sure that we’re challenging ourselves and not just doing things the way we’ve always done them.

David Mate
Asset Performance Manager
Endeavour Energy

All of these topics and more are covered in the panel discussion, so regardless of where you are on your ESG journey, this engaging webinar will provide insight into how your organisation can improve the implementation of its ESG strategy. Watch the full webinar here.