Net zero now on the boardroom agenda
The Australian Institute of Company Directors (AICD) conducted a study of 2,074 members focused on climate governance at the boardroom level.[1]
Key findings included:
- Australian directors are concerned about climate change risk to their organisations
- Most directors (77%) are concerned about climate change risk to their organisation, with nearly one quarter (22%) ‘extremely’ concerned
- Half (51%) also see opportunities from proactive responses to climate change
- Directors want to do more – but face capacity and resource limitations where almost half (46%) of directors want their boards to increase attention to climate governance
- Almost half (46%) of directors want to do more, but ‘don’t know where to start’
While certain larger corporations and early adopters have a decade or more worth of engagement on sustainability, in the wake of COP26 there has been an increase in net zero commitments by others as evidenced by Climate Works net zero commitment tracker (https://www.climateworksaustralia.org/resource/net-zero-momentum-tracker-online/)
As part of the ‘don’t know where to start’ response, in certain cases this can end up meaning the hiring of a sustainability or energy manager (anecdotal evidence from Seek and LinkedIn in 2020 to 2021 points to an increase in hires in this space).
As a newly minted energy or sustainability manager, there is no easy answer on the ‘where to start’ question. The aim of this blog post is to share some ideas we have to help support those on the frontlines so they can be strategic when building strategy.
Engaging with executive management early
There is a strategic opportunity early on to form a relationship with executive management, introduce yourself and ask questions. Given the role of executive management and leadership in developing an energy management system, outlined later, finding your champion or a passionate advocate that is on the board can be an important early first achievement.
Executives often enjoy exploring strategic problems and will make the time to go through an agenda of well-prepared questions.
It is possible that this initial discussion will also indirectly outline the depth of integration of the sustainability role within procurement, finance and HR. Where this had not been considered prior, flagging this early can help set the tone and build a dialogue around developing an ambitious strategy.
Examples of deeper sustainability integration include:
- Lion – establishing an internal carbon price to assist in accounting for carbon externalities[2]
- Blackmores Group – considering cross industry collaboration and R&D on hard to abate sectoral issues and technology gaps past just energy efficiency and renewables[3]
- HSBC – incorporating remuneration and director bonuses associated with sustainability targets
Other common integrations include:
- Involving the sustainability manager in approval of business cases with an energy related procurement component
- Developing adjustments to financing rules associated with the business case for energy efficiency and renewables projects to account for environmental externalities. This can mean lowering the required internal rate of return (IRR) for CapEx requests in a standard business case i.e. changed from the 10% benchmark hurdle rate to 6% for energy efficiency upgrades
Some of these examples may be useful talking points in developing the conversation around net zero with executive management. Putting forward examples of other early adopters and industry leaders can also help build credibility.
Frameworks for building momentum
Some early questions and lines of enquiry in the first few weeks in the role could include the following.
1. Understand energy procurement
Integration of energy procurement and energy management is critical. Given energy contracts are often negotiated for two-to-five-year periods, there is a certain timing aspect to contract renewal and what you can and can’t influence. Understanding where the business is in that cycle is therefore important.
Some questions could be:
- Who manages energy procurement?
- What are our current contract terms?
- Can I get a copy of the contract?
- What are our forward energy rates per quarter?
- What process did we go through to procure energy etc?
2. Focus on the plumbing
Coming into a role and finding excel sheets, varied sources of data and diffuse and incomplete records can be frustrating, but can also be seen as an opportunity.
The role of internal system development, quality assurance and efficient aggregation of data is central to the sustainability and energy management function.
While the role of software or PowerBI in reporting can be exciting (and often why sustainability managers are hired), focusing on how data is processed in these systems in similar to focusing on the plumbing in a building – build the correct pipelines so data flows easily and the systems works, otherwise there are leaks and things break!
Essentially, without the right plumbing, the whole system falls apart and any reliable, scalable and transparent attempt at benchmarking, developing energy performance indicators or reviewing group energy costs will simply fail.
It isn’t always the most attractive thing to do or that visible to management, although it does help to build quality data management systems early on that will greatly assist in building momentum.
3. Energy efficiency as the first fuel
It goes without saying that energy efficiency is the ‘first fuel’, given the best fuel or source of energy is that which you don’t even use in the first place. As an initial starting point, energy efficiency also has a reliable toolkit available for decarbonisation of Scope 1 & 2 emissions.
Building management literacy around energy efficiency and not just talking straight away about renewables (solar) or PPAs can help guide the frame the organisations frame of reference. Always take opportunities for executive education!
4. Project or system focus to financing retrofits?
Pending on what you are walking into, there may be an existing sustainability budget or program or works around energy efficiency, renewables and sustainability more generally.
That said, pausing for a moment and reviewing the integration of energy management in the business can be important. Often, we have observed that businesses have an “energy project focus” as opposed to an “energy management system” focus.
The difference is that in a ‘project based’ approach, capital budgets for retrofits are seen as one off each budget cycle, as opposed to a considered approach to investing in efficiency and improving over time in a deliberate, measured and meaningful way. A revolving sustainability fund, where measured results and savings are linked to increased CapEx budgets for upgrades is one example of a more systematic approach to setting sustainability budgets. Understanding how historically projects have been funded may give an indication of energy literacy, approaches to risk management and how energy management opportunities have been perceived historically (history is important).
One of the strengths of being in the role, is the ability to tweak the approach and build a systematic approach that has legacy and while sometimes harder to do, it may be strategic to question the status quo and opt not to prove yourself with high value efficiency upgrades in a project focus first, but rather improve the structural approach to efficiency from first principals.
Early structural development
There has been a movement in the sustainability sector towards the role of internally developing Energy Management Systems (EnMS) as a key part of net zero strategy.
- There is an ISO standard for developing an energy management system (ISO 50001), although this has had low uptake for several reasons in Australia.
- It is possible however to build an energy management system, guided by the ISO principals, without undergoing the entire ISO 50001 certification process.
So what is an energy management system?
- ISO 50001 generally defines an EnMS as a “management system to establish energy policy, objectives, energy targets, action plans and processes to achieve the objectives and energy targets”
Put simply, in absence of any structure where historically there has been only project based investments in retrofits (unfortunately quite common), here are some basic elements you can develop to get started!
- Start by drafting a policy document
- The links to other strategic documents can be included in this stand alone policy and this is often a great starting point if an energy policy document does not yet exist
- An example of a policy document used in an energy management system can be seen here Energy Management Policy (cromwellpropertygroup.com)
- This can give rise to the exploration of Objectives and Targets
- Actions that then support deliver of this can then be explored
Having executive involvement in the formulation and governance of these objectives is key given leadership is at the heart of a successful energy management strategy. While your role is part of that leadership, there is a need for executive involvement to help set objectives and targets at the board level and to assist in formulating financing criteria and so forth.
Energy management is a team sport!
Get out of the building
On the flip side, you are not expected to have all the answers right away and be writing strategy documents and such 24/7. Getting out of the building is highly valuable given you have fresh eyes as a new member of the team. Going to site, engaging with operators, staff and even end users / customers is an important part of deeply understanding the businesses value proportion, culture and how the company interacts with the world in a more general sense.
Using the early period for more open exploratory work and building relationships with a varied set of stakeholders is invaluable and should not be underestimated. It is OK to think deeply about the role of sustainability in the company, even until it feels uncomfortable. The strategy will come!
Final Thoughts
While there can be a temptation to take action in a new role, reflecting, building relationships, listening and learning are equally valuable strategies. Taking time to pause and see the bigger picture is often a luxury that isn’t available once a strategy is formed and you are in delivery mode.
It is an exciting phase for both you and the company. Above all enjoy yourself!
References
[1] https://aicd.companydirectors.com.au/resources/climate-change/climate-governance-study-risk-and-opportunity-insights-from-australian-directors
[2] Energy Efficiency Council – First Fuel Podcast – Justin Merrell, Group Environment Director at Lion – October 2020
[3] Energy Efficiency Council – First Fuel Podcast –Sally Townsend, Head of Sustainability at Blackmores Group – November 2021