March 1, 2019

by David Photiadis – Director, The Delphi Group

Every two years, The Delphi Group conducts the Energy Sector Sustainability Study (ES3), a comprehensive study of sustainability performance and reporting in the energy sector. Based on publicly available data, our analysis covers over 100 sustainability indicators and corporate practices.

We – in collaboration with our clients – created the ES3 to provide companies with a comparison of how their sustainability management and disclosure practices measure up against their peers’. Through custom benchmarking and insights into trends and best practice, our clients identify opportunities for new programs, strategies and investments.

4 Key Findings from the 2018 Study

#1: An energy transition is well underway in Canada

The world is undergoing an energy transition – a fundamental shift in how and where energy is produced and consumed. Global energy markets are being redrawn as the world looks for lower carbon energy sources to combat climate change and adopts radical technological changes that can reshape energy supply-demand dynamics. These changes include the unlocking of previously inaccessible oil and gas reserves, the electrification of industry, and the adoption of energy storage, smart metering and IoT technologies. Adding complexity to the picture is a growing global demand for energy as populations increase and billions of people around the world move into the middle class.

es3 - smart meter

In Canada, this energy transition is well. Our analysis revealed higher-than-ever reported levels of investment in low-carbon energy sources and technologies, ranging from large-scale investments in renewable energy assets, carbon capture and storage, energy storage technologies, and smart metering to the deployment of advanced energy efficiency.

Overall, 72% of all companies in the study are actively investing in and reporting investments in low-carbon technologies to their investors.

#2: Climate disclosure is not negotiable

If you’re operating in the sustainability space, it’s hard to go more than a few days without hearing about climate disclosure or the Task Force on Climate Related Financial Disclosures (TCFD). This reflects the increasing recognition that climate change will have significant impacts across industries, posing a risk to corporate and investor profits.

es3 - small windMore and better information on climate risks and opportunities supports informed business and investment decision-making. That, in turn, will enable the market to efficiently allocate capital throughout the economy to distribute risk and facilitate a smooth transition to a low-carbon economy.

While the TCFD recommendations are still new (the final recommendations were released in June 2017), nearly 25% of companies in the ES3 study have now aligned or are moving towards aligning with the TCFD recommendations.  In addition, one-third of the companies we analyzed are now issuing a separate, stand-alone climate change report to stakeholders, outside of traditional sustainability reports, CDP submissions, and annual reports.

In 2016 – the last time that Delphi completed the ES3 analysis – only two companies reported separate climate change reports, and both were multi-national energy giants. Fast forward to today, we see that specific and detailed reporting on corporate climate change strategies, risks and opportunities is becoming non-negotiable.

#3: Energy companies are embracing a social agenda

Our analysis shows that reporting on critical social dimensions of sustainability – specifically stakeholder engagement, diversity and inclusion, and indigenous engagement – has increased since 2016, both in terms of the number of companies who report on these issues and the depth of reporting.

These results demonstrate the heightened importance of these issues to energy companies and their constituents. However, the nature of reporting on these topics remains general and largely qualitative, illustrating the continued challenge companies have in meaningfully reporting on social dimensions of sustainability.

#4: Sustainability reporting is evolving and maturing

Each time we conduct the ES3 study, we examine how the sustainability reporting landscape is changing. We look at the leading sustainability reporting standards, best practice, reporting formats, and the audiences that companies are targeting with their sustainability communications.

es3 - report

More than any previous year, this year’s findings highlight that sustainability reporting is at a crossroads: caught between its historical practice as a voluntary communication avenue suitable to a wide range of stakeholders, and the increased demands from investors for more specific and investor-oriented disclosures. This latter development – while welcomed – is causing companies to rethink their overall approach to sustainability communications

Our analysis revealed:

– Renewed and revigorated activity on integrating sustainability disclosures into financial reporting.

– Increased volume of sustainability material dedicated specifically to investors.

– An increasing number of different reports and avenues for communicating sustainability information to different stakeholders, including comprehensive sustainability reports, climate reports, community reports, indigenous engagement and human rights reports, and separate disclosures to the CDP and the adoption of the UN Sustainable Development Goals.

These trends suggest that the “one stop sustainability report shop” is no longer the best, or even most common practice.

However, comprehensive sustainability reports are not going away – they remain the bedrock of sustainability communication for most companies.  The Global Reporting Initiative (GRI) remains the most widely used sustainability reporting framework, as it has been for nearly two decades. Having said that, we found the uptake of the GRI standards to be very low among the energy companies we looked at.

For sustainability practitioners, this all points to the continued need to satisfy multiple stakeholders with different types of information. To be successful, companies will need to develop their own strategy and own their message across a variety of formats and approaches.

David Photiadis is a Director at The Delphi Group. For more information on the ES3 or Delphi’s services, feel free to reach out to David directly