Disruptions are common in most industries, and the concept of resilience–the ability to bounce back after a crisis or disaster–is not new for organizations. However, the disruption experienced across the globe by the unprecedented spread of COVID-19 has dramatically changed the way many organizations operate and think about resilience. The crisis has many wondering, “Is my business really as resilient as I thought?”
In recent years, leading companies have been turning to their energy and sustainability programs to build greater resilience in their operations. In general, resilience-building energy and sustainability initiatives focus primarily on maintaining energy availability, science-based progress towards mitigating climate change, and managing risk.
Despite the disruptions, organizations and economies have done their best to adapt to the current environment. Nevertheless, the global pandemic reveals how unprepared our human, business, and economic systems and infrastructures are in responding to some of the greatest unseen threats our civilization faces. As a result, most organizations are evaluating how they can implement additional resilience strategies. To help you recover with resilience, let’s look at the concepts of disruption and resilience, and how energy and sustainability programs can help your company build back even better.
Global Disruption in Energy Markets
Driven by decreased electricity demand and competitive energy pricing during the pandemic, energy markets have experienced a great deal of disruption. As the world shifted to remote working and lockdowns at the onset of the pandemic, oil consumption decreased substantially. As road traffic decreased across the globe, oil prices sank to historic lows, negatively impacting oil and gas. Even though coal-to-gas adoption has increased in recent years due to its lower carbon footprint and cheaper prices, global consumption of natural gas is projected to decline 4 percent in 2020.
Prior to the pandemic, renewable energy was projected to surpass coal as the primary source of global electricity by 2025. While the impact of COVID-19 to this projection is still not known, renewable energy had—at the time—reached price parity with conventional fossil fuel-fired generation in many markets. Although overall demand for electricity has fallen due to COVID-19, demand for renewable energy sources has remained strong with an uptick of 3% in generation. As a result of this demand, renewable energy pricing has changed since the pandemic, with some increases.
What is Energy Resilience?
As shown above, energy markets can be incredibly volatile. Many organizations are heavily dependent on energy consumption to operate. For example, major retailers and consumer goods companies utilize a vast amount of gasoline in their delivery fleets and supply chains. As a result, their profitability can be heavily influenced by pricing changes in oil.
Similarly, manufacturing organizations can utilize a large amount of energy during the creation of their goods. When these organizations who depend on energy utilization to create their product or service experience energy pricing volatility, it can dramatically impact their bottom line.
Developing “energy resilience” for organizations usually means mitigating energy pricing volatility risk. The strategies for increasing energy resilience can be quite complex, and vary by industry and region, but can include everything from smart sourcing to reduce cost exposure, to installing onsite renewable energy or microgrids, to signing power purchase agreements to fix energy prices.
Click here for expert perspectives on the current state of corporate renewable energy buying.
Global Disruption in Sustainability
To be a truly sustainable organization requires a certain amount of resilience. For most organizations, the COVID-19 pandemic required drastic, unexpected pivots to redefine business operations. While many of the world’s leading organizations have been developing business resilience for years, most of the resilience models did not consider global lockdowns and mass quarantines. As a result, many sustainability initiatives have either paused or stopped completely in order to deal with the implications of the global pandemic, and ensure the health and safety of employees and customers. The most resilient organizations, however, have maintained focus to continue making progress toward their sustainability goals. This trend became evident when we polled our webinar participants about the changes they are making in response to market disruptions at the beginning of the pandemic in April and again, 3 months later in July. Compared to early in the crisis, attendees in July reported a reduced focus on postponing projects, while reliance on cutting costs continued to increase.
Click here to access our most recent energy market update webinar on-demand.
How Does Sustainability Increase a Company’s Resilience?
Sustainability is typically thought of as the continuous harmonious coexistence of the environment, economies, and human activity. In order to pursue a resilient recovery and improve their ability to adapt during times of crisis, organizations should focus on maintaining (or even accelerating) momentum in sustainability programs and goals.
Like energy resilience, building resilience with sustainability is a multi-faceted endeavor with strategies that vary for each individual organization. But examples of sustainability initiatives that help build resilience include conducting scenario analysis to quantify future climate risks and working with supply chain partners to reduce emissions and reliance on fossil fuels.
From a financial resilience standpoint, we have observed that businesses with environmental, social, and governance (ESG) initiatives have fared better during the pandemic. Additionally, major banks, lenders, and investors have announced that they will be evaluating ESG initiatives as part of the lending and investing process.
The COVID-19 pandemic has challenged the resilience of our global systems and communities. While this has been the biggest source of disruption in modern history, it will not be the last. Our global interconnected systems are still at risk. Events from natural disasters, climate change, or other crises could pose an even greater risk to people, organizations, and economies. It has been suggested that the economic damage at risk from climate change could be as bad as having a COVID-19-scale crisis once every 10 years. Leaders in organizations of all sizes have the opportunity to take the lessons learned from the pandemic—and other disruptions—to help improve their organization’s resiliency by embedding energy management and sustainability as core decision-driving values.
From an energy and sustainability standpoint, focusing on green recovery, preparing for increased digitization, and accommodating stakeholder demand for action on climate change is a great place to start. Our global team at Schneider Electric Energy & Sustainability Services stands ready to advise and lead our clients in their energy and sustainability endeavors during this unprecedented time. Visit our Perspectives Hub to join the conversation or contact us directly for support.