Q: It’s March 2023. What are your thoughts on the current energy environment? Are we still floundering in an ‘energy crisis’?
According to IEA, renewables were the only energy source for which demand increased in 2020 despite the pandemic, while consumption of all other fuels declined. However, energy markets began to come under strain in 2021 because of confluence of several factors – the unforeseeable rapid economic rebound following the pandemic and the international spillover from US headline inflation.
But the situation escalated dramatically into a full-blown global energy crisis following Russia’s invasion of Ukraine in February 2022. The price of natural gas reached record highs, and as a result so did electricity in some markets. Oil prices hit their highest level since 2008 (U.S. oil spiked to USD130.50 in March 2022 before retreating). The electricity markets in EU experienced skyrocketing prices due to uncertainties over both fossil fuel supplies and the economic outlook.
Currently, high energy prices are exacerbating the high inflation, slowing economic growth to the point that some countries are heading towards severe recession. An insightful report from World Bank shows that lack of access to finance under reasonable terms, makes the costly upfront investments in renewable energy unaffordable for developing nations. While gas-fired generation in the EU is forecast to decline, growth in the Middle East may offset this decrease. A fall in coal-fired generation in Europe and the Americas may well be matched by a rise in Asia Pacific. There may be a retreat back to fossil-fired generation amidst the manifold challenges of the sluggish global economy, adverse weather events, high fuel prices and uncertain government policies.
We need solid policy reforms, clever capacity development, sound financing arrangements and global coordination ensure clean, affordable and accessible energy for all, but this is plainly not yet the case based in recent outcome of the G20 meeting in New Delhi.
Today I believe there is truly an energy crisis which involves a potential U-turn back to fossil fuels, stubbornly high energy prices, and a perceived lack of global consensus or leadership in mitigating the rise in emissions.
Q: The developed countries have been insisting that the developing countries need to reduce their energy intake in order to reduce emissions. Yet on a per capita basis, most of the developed countries like Australia, US and Canada are amongst the worst emitters whilst the poorest nations are the smallest emitters. How can we solve the need to reduce emissions in developing countries without putting undue strain on those in need?
There is no easy solution because the developing countries clearly need climate finance to boost their NZE ambitions. Notably there should be committed funds and predictable climate finance to Green Climate Fund (GCF), Global Environment Facility (GEF), Adaptation Fund, and Least Developed Country Fund (LDCF). However, the funding for such funds have fallen short of commitments. At COP27 in November 2022, a hard-fought agreement to set up a new Loss and Damage Fund may yet save the day. Critically, such funds should be deployed towards:
Power systems – Electricity generation will need to reach net zero emissions globally as soon as possible. The electricity system needs flexibility and plug & play capability, such as batteries, demand response, hydrogen-based fuels, hydropower and more – to ensure reliable supplies.
Clean power – Heavy industries and transportation need to be low or zero emissions. This means car run on electricity or fuel cells, plane run on advanced biofuels and synthetic fuels, and industrial plants run on carbon capture or hydrogen.
Coordinated efforts – Every strata has to collaborate. Governments, working closely with businesses, investors and citizens. The international cooperation amongst countries is also a must so that useful technologies for carbon mitigation can be harnessed at scale.
Q: In terms of ‘Just Transition, what do you think is the actual role of the ‘S’ in ESG?
In order to tackle pressing environmental challenges like climate change, pollution and plummeting biodiversity, nations as well as businesses need to transition towards greener, resilient and climate-neutral economies and societies. A Just Transition means greening the economy in a way that is as fair and inclusive as possible for all stakeholders concerned by creating decent work opportunities and leaving no one behind.
There has to be 2 Cs – Conversation and Consultation – on the social objectives to be achieved.
At the same time, it is incumbent on businesses and corporations to be conscious that they:
- can aspire to be a generator of decent green jobs that can contribute significantly to poverty eradication and social inclusion; or
- can take a holistic approach to sustainability reporting and impact management, harnessing useful tools such as the collaborative approach by B Lab and GRI
Q: On this topic, why is sustainability reporting gaining so much prominence? Doesn’t it only apply to listed companies in general?
In Singapore, sustainability reporting is a requirement for companies listed on the Singapore Exchange (SGX). However, sustainability reporting is now view as an invaluable tool which can provide insights on a company’s financial performance and long-term enterprise value.
Sustainability reporting is an important part of stakeholder engagement and communication. It demonstrates transparency to stakeholders and holds the company accountable for the impacts that arise from its activities, serving to build trust with stakeholders in the process. The discipline and rigour involved in producing the sustainability report (the very act of having to measure and report) drives continuous process upgrades and embeds sustainability into the company.
In Singapore, both the GRI and SASB are widely recognized as high quality standards which can be used for sustainability reporting. They provide a common framework resulting in a comparable and consistent dataset for benchmarking and analysis. The disclosures under both standards meet the needs of a broad range of key stakeholders, and are also seen to be supporting increased stakeholder engagement and improved disclosure for key audiences. Investors are catered for specifically. The reporting covers impacts by and impacts on the organization and allows a gap analysis and comparison of reported issues and benchmark within or across sectors. The reporting provides alignment of materiality, and support for materiality assessment in fairly user-friendly frameworks. Best of all, both reporting frameworks are compatible with UNSDGs and other frameworks, giving an overview which balances social conscience and financial performance. Companies, regardless of size or scale of operation, should consider whether the use of these other standards will help complement or enhance sustainability disclosures for their stakeholders.
Q: What would you recommend to every reader of this article in order for the world to align with the Paris Agreement?
- Conscionable living: In his 93 years, David Attenborough has visited every continent on the globe, exploring the wild places of the planet and documenting the living world in all its variety and wonder. But during his lifetime, Attenborough has also seen first-hand the monumental scale of humanity’s impact on nature. Watch on Netflix : A Life on Our Planet. It is beautifully and sensitively shot.
- Embrace and invest in energy efficiency: At a personal level and corporate level. The best energy is the energy that is not used.
- Procure energy from sustainable sources: It doesn’t take much more effort given the manifold options now available in the market to really make a concerted effort to transition to green and to only use clean.
For further information, please contact:
Sandra Seah, Partner, Bird & Bird
sandra.seah@twobirds.com
