What Is the Energy Transition?
You likely already know the answer: energy transition is the transition from one widely-used fuel to another, currently fossil fuels, to low-carbon sources. And that’s not why you’re here. What those serving the energy industry worldwide want to know is how they can define energy transition to be an integral part of what they sell. Believe it or not, oil and gas products and solutions can honestly redefine themselves as part of the energy transition.
Embrace Energy Transition Thoughtfully: Know the Next Best Steps
Companies globally should expect and prepare for energy transitions. Over the last couple of centuries, as shared in the Our World in Data, energy has transitioned from wood to coal, from coal to oil and natural gas. Fast forward to now, the growth is towards renewable energy sources. Changes have and are continuing to happen, even with the notable improvements in profit reported by large oil and gas companies at the end of last year, as shared by Forbes.
“Reluctantly, many are pushing decisions about the energy transition into the ‘do another day’ file in the hope that circumstances change and that the affordability of the new approaches they would like to take will become more feasible in the coming months,” Dr. Karina Rigby, Critical Systems Division for Eaton, reported for Forbes. “The drawback of this, of course, is that the longer they delay, the fewer savings they can reap from their energy transition over the short to medium term.”
The key is figuring out the next step to take.
Key Energy Transition-related Terms
Here’s a high-level overview of key terms used in the industry and their interpretation, as well as a high-level competitive messaging overview regarding the efforts commonly referred to as “energy transition” and “sustainability.” Reviewing and understanding the range of key terms used interchangeably in energy transition-related rhetoric is the first step in understanding what the energy transition means.
Overall, there needs to be more consistency in the industry regarding the terminology around sustainability efforts. Industry players use a range of generic/specific terms and expressions, including some of the following:
- Energy sustainability
- Preventing pollution
- Reducing GHG emissions, methane emissions and CO2 footprint
- Reimagining energy
New energy descriptors:
- New energy, mix and frontiers
- Differentiated, sustainable, renewable, alternative energy, clean energy, low-carbon or other different kinds of energy
- Net-zero roadmap
- Climate action
- Energy transition
- Transition to a cleaner future
- Green efforts
- Taking energy forward
- Energy expansion
- Transforming energy
- Lowering carbon footprint
- Environmental, social, and corporate governance (ESG)
Albeit not the same, three standard terms used across industry segments are sustainability, ESG and energy transition, often used casually and interchangeably.
Consumers see sustainability as a paradigm — a way of thinking — about an ideal future in which environmental, societal and economic considerations are balanced and work to improve the quality of life.
Sustainable development seeks to balance different and often competing needs against a growing awareness of our environmental, social and economic limitations. While sustainability is a long-term goal, sustainable development refers to processes and pathways to achieve it, such as sustainable agriculture and forestry, sustainable production and consumption.
The three main pillars of sustainability are people, planet and profits, known as the triple bottom line (TBL), or the 3Ps — referring to societal, economic and environmental development.
ESG environmental criteria may include greenhouse gas emission reduction, energy use, and waste generation. Social standards refer to labor practices, diversity and human rights. In contrast, governance efforts stand for anti-corruption, bribery and diversity in broader terms.
ESG requirements vary based on the company’s nature and size (public/private/big/small) and their industries. Increasingly, the ESG approach is more quantifiable in measuring growth and profitability than sustainability.
Sustainability versus ESG
The broader discussion among industry leaders began with sustainability. And, for a few decades, sustainability versus ESG has had the most staying power. The collective awareness has shifted to acknowledge the importance of societal, economic and governance factors for successfully tackling environmental challenges beyond the initial narrow focus on ecological issues.
ESG has become the dominant acronym encompassing environmental, social and governance efforts, possibly because of the capital markets and the investment community getting on board and the rapid rise in the so-called ESG funds. The rapid growth of ESG investment funds is challenging due to a need for more standardization and precise definitions. Nonetheless, investment focus on ESG has led to the shift of focus from sustainability to ESG.
ESG and sustainability are similar, but ESG is more specific and measurable and offers quantifiable criteria for companies to measure and report their activities. Increasingly, sustainability is an umbrella term. ESG focuses on environmental, social, and governance rather than just going green or being socially responsible. Because ESG uses tangible success metrics, it’s seen as easier to prove its impact. However, only some in the business and investment community are on board with ESG as the only meaningful rubric; some argue that the acronym obscures the true purpose of sustainable efforts.
According to S&P Global: Energy transition is the global energy sector’s shift from fossil-based energy production and consumption — including oil, natural gas and coal — to renewable energy sources like wind and solar, as well as lithium-ion batteries.
According to IRENA (the International Renewable Energy Agency): Energy transition is a pathway toward transforming the global energy sector from fossil-based to zero-carbon by the second half of this century.
Beyond simply shifting the energy mix, this process also implies a significant structural change across the entire energy supply and consumption value chain. We’ve previously shared that McKinsey & Company outlines that the energy transition is happening across nine key sectors: oil and gas, power, automotive, aviation and shipping, steel, cement, mining, agriculture and food, forestry and land use.
The term energy transition means different things to different companies. But what it means to everyone is an ongoing, transformational process that helps to reach an end goal (such as net zero).
What Does ‘Energy Transition’ Mean to You?
In avoiding greenwashing or deceiving clients of a product’s actual environmental impact, communicating a company’s ability to participate in the current energy transition can be complex. Many find it challenging to avoid involving a confusing lexicon that neither those serving the energy industry nor clients can digest. At the same time, each oil and gas company will inevitably have to undergo unique changes depending on its products and services. However, all oil and gas companies will benefit from increased communications support regarding this energy transition.
Effectively Communicate Energy Transition Changes to Clients and Internally
Whereas US regulations are involved, energy transition-related knowledge and discourse are less common among the general population. As shared by McKinsey & Company, empowering and educating customers and employees throughout your company is a necessary action to take toward navigating the energy transition.
“Utilities and other energy companies can put in place programs to help their customers understand, prepare for, and adapt to potential changes,” the report said.
New programs take increased communications efforts while any number and type of energy transition changes are underway, and now’s the time to act.
“The United States’ accelerating momentum toward an energy transition puts it, at long last, on a path to achieving necessary decarbonization, even though the short-term global headwinds cannot be ignored,” a McKinsey report said. “If carefully planned and executed—with attention to socioeconomic impacts and affordability concerns; supply chain, transmission, and land constraints; technological innovation; and enabling market mechanisms—the United States can make marked progress toward a relatively more orderly energy transition.”
Energy Transition Expertise
When it comes to shepherding oil and gas companies operating in the downstream, midstream and upstream sectors toward a profitable forward-looking energy transition solution, marketing experts at HexaGroup can help.
Energy marketing specialists can assist you in surmounting the complexities stemming from the energy transition. Our brand and verbal identity engagements target energy transition needs. We answer pressing questions, including:
- What is the strategy for entering new energy and renewable energy markets?
- What is the company's internal roadmap to sustainability and ESG planning?
- How do the internal roadmap and ESG planning affect recruiting?
- How do we help our clients achieve their sustainability goals?
The sooner you start tackling the inevitably forward-moving energy transition, the better. For comprehensive support in helping navigate the energy transition, please don’t hesitate to contact HexaGroup today.