The Energy Crisis Should Be a Wake-up Call to Tackle Inefficiency
14th June 2022
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Rising energy prices and the war in Ukraine make tackling energy wastage a moral as well as an economic imperative.
The war in Ukraine and the surging price of oil and gas have put the spotlight on our energy security in a way not seen in decades. How we produce our energy – from nuclear, onshore wind and solar farms – is hitting the headlines like never before. But very little attention has been paid to the role that businesses should play in tackling our current energy crisis.
There has never been a stronger moral or economic case for companies to rethink their energy use – ESG considerations, the climate crisis and compelling cost savings are all piling on the pressure for businesses to act.
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The moral imperative
ESG has become a Board-level discussion in recent years, meaning that businesses are now being held to higher levels of accountability by shareholders, clients, and consumers.
The war in Ukraine has illustrated the risks of relying on autocratic nations to supply us with fossil fuels. European governments are wrestling with how to wean themselves off Russian gas since Putin invaded Ukraine. It is now more apparent that businesses need to question their own role in buying and effectively supporting petrostates that have questionable human rights records. The power of investor and consumer action is escalating at pace, with social media campaigns playing a major role in why dozens of Western brands, from McDonald’s to Shell, have halted their Russian operations.
We have already seen such moves when it comes to climate change, with the UK Government forcing big companies to disclose their climate transition plans and private equity firms increasingly focused on reducing emissions through their portfolio companies. If businesses do not start to address their own energy usage as part of their wider sustainability strategies, consumers and investors will be asking difficult questions in the years to come.
The climate crisis
The climate crisis is an existential threat to our planet, and the most recent report by the IPCC said that it is “now or never” to limit planetary warming. The globally respected International Energy Agency (IEA) has been a particular champion of energy efficiency, saying in a report in November that acting on energy efficiency was crucial to keeping the world on track to avoiding a climate disaster by the middle of the century. It added that tackling “energy efficiency offers some of the fastest and most cost-effective actions to reduce CO2 emissions”. The IEA predicts that if the world were to implement the cost-effective energy efficiency opportunities available today, demand for energy could fall by 15% by 2040.
Frankly, tackling energy inefficiency should have been a priority within ESG strategies even before the war in Ukraine.
According to BEIS, UK businesses currently produce around 90 million tonnes of carbon dioxide each year, equivalent to a fifth of the UK’s greenhouse gas emissions. So squeezing energy efficiency could have a demonstrable effect on the UK’s overall carbon emissions and reduce the demand on our already stretched grid, which will need to produce ever more low carbon electricity in the years to come.
It is also the most economically viable way to reduce emissions, with energy waste filtering out of a business across many channels, from premises lacking basic insulation, overheated workplaces to further infield powering data centres. Whilst many companies may have made Net Zero pledges, the time has come for them to truly demonstrate to consumers and stakeholders that these are not just empty promises. Our work with clients has shown the role that energy can play in kick-starting and potentially funding other emission reduction activities. These issues permeate all industries and need to be taken into consideration by everyone. From the tech titans of Silicon Valley, such as PayPal, to the financial services industry’s HG, and the energy providers themselves (SSEN), Anthesis has supported them to make significant greenhouse gas reductions in the real economy.
Compelling savings
If the moral imperative of ESG isn’t enough, there has never been a stronger economic case for companies to act. Traditionally, only companies in energy-intensive industries, such as manufacturing or construction, have paid attention to their energy usage and discussed it at the Board level. However, soaring prices have made energy a material issue in many organisations for the first time. It is a cost that can no longer be ignored, given that it is often the second-highest controllable spend for many businesses and those rising prices are now affecting margins across the board.
Businesses waste energy because no one has ever sat down and created a coordinated strategy to reduce demand and improve performance. Responsibility is often dispersed across the organisation; perhaps the engineering team sets the controls for the server room, the facilities team oversee offices; and no one has ever thought to look at the key energy generation or consumption assets.
Industry analysts predict energy prices to stay high until at least 2030, so having a coordinated and focused plan to improve energy efficiency is a simple way that chief executives can cut costs and save money for the long term. The return on investment of energy efficiency upgrades has come down dramatically in the past year. Pairing rising energy prices with improving technology and digital tools, many previously overlooked technologies, such as Building Management System upgrades, heat recovery and lighting controls, now pay for themselves within two to three years. After that, the savings are locked in.
The Wake-up call
The war in Ukraine and volatility in energy markets will continue to cause problems for Western governments, consumers and businesses in the years to come. With ESG considerations and the climate emergency only mounting in importance, and potential cost savings not to be overlooked, there has never been a stronger case for tackling energy waste. Businesses should not ignore this wake-up call to act on energy inefficiency now.