Understanding ESG: Importance and Impact on Sustainability in the Energy Industry (Full Transcript)

Speaker 1: As the energy industry evolves, there is a greater customer and industry focus on sustainability, reducing carbon, and reaching net carbon zero. Constellation is here to help. Welcome to Sustainability 101 Environmental, Social, and Governance, or ESG. What is ESG, and why is it important for your organization? The energy industry is evolving at a rapid speed. Driven by a combination of corporate environmental, social, and governance, ESG initiatives, competitive pressures, and compliance with new federal, regional, or state policies, organizations are exploring sustainability goals and their overall business strategy. Companies are accountable to multiple stakeholders, including investors, customers, employees, government and non-governmental organizations, who want to evaluate a company's impact on the world. In fact, the U.S. Securities and Exchange Commission, SEC, is currently considering phasing in climate change disclosures on a company's annual 10-K or other public reports. Let's take a closer look at ESG. Starting with E, Environmental. This considers companies' energy use, environmental impact as stewards of the planet, and how a company uses resources across the board, specifically scopes 1, 2, and 3 emission sources. Factors considered are energy efficiency, climate change, carbon emissions, biodiversity, air and water quality, deforestation, and waste management. Organizations that do not consider these environmental risks may face unforeseen financial risks and investor scrutiny. Social. The social criterion examines how a company fosters its people and culture, and how that has ripple effects on the broader community. Factors considered are inclusivity, gender and racial diversity, employee engagement, customer satisfaction, data protection, privacy, service to community, corporate giving, human rights, and labor standards. Governance. Governance considers a company's internal system of controls, practices, and procedures, and avoidance of violations. It ensures transparency and industry best practices and includes dialogue with regulators. Factors considered are the company's leadership, board composition, executive compensation, audit committee structure, internal controls, shareholder rights, and political contributions. Transparency is critical to the process, in which some companies emerge as sustainability leaders, others as laggards. Transparent reporting enables stakeholders to gain a clear picture of a company's direction and progression. For example, a company might not be carbon neutral today, but may be making significant efforts towards this goal. Stakeholders need visibility on the progress, as well as the goals. A recent Morgan Stanley survey found that 85% of U.S. investors are interested in sustainable investing. ESG analysis and reporting is becoming more prevalent. Incorporating your values and concerns will help drive better decisions, and produce positive sustainable and societal impacts. Constellation has a full array of tools and strategies to help you build your carbon reduction sustainability plan, both long and short term. Check out some of our solutions at constellation.com slash set