Prior to the pandemic, shifting customer demands and disruptive technologies were transforming the energy sector. While some uncertainty remains around the future impacts of COVID-19 on energy demand and supply, we are entering the new reality that has changed every area of business life, and globally, the way energy is perceived and consumed. Our new reality will not be a snap-back to where we were, but a gradual recovery.
KPMG in the UK summarized several global trends shaped by the pandemic that have implications for the energy sector and offer insights on potential outcomes that companies should be contemplating as they position for growth and build a sustainable and secure future for all – with energy.
Potential outcomes for the energy sector to consider
Greater perception of climate change as systemic risk
Organizations will need to re-evaluate their approach to global risks as a result of this crisis. Various countries are reporting emissions and pollution are down, with populations noticing the improvement in air quality during this crisis. In the short term, focus is on COVID-19 and dealing with the economic implications of this crisis. However, it seems likely that the climate change agenda will return even stronger over the medium term, just as it did after the financial crash of 2008.
Social and governance factors in decision-making
The push to incorporate social and governance factors in decision-making could come from investors, employees and customers but governments could require that new measures are adopted in return for the support measures introduced in response to the pandemic.
New-data sharing models
This crisis presents an opportunity to develop new data sharing models between Government and the energy and water sectors to target help on the most vulnerable. This has been done successfully in the food sector, with greater data sharing between governments and the food retailers.
Agile business transformation
Energy, water and utility companies ensured operations continue with social distancing regulations and remote working. Virtual operations have been established that show what is possible in the ‘new reality’.
The permanent changes in work and travel patterns caused by this crisis will lead to different patterns of energy demand. There are huge opportunities to use this shock to move to a smarter energy system with more active balancing of demand and supply at a local or community level.
New approaches to risk management
Addressing immediate cash flow and liquidity issues has been the priority for many companies in the sector. Dynamic risk assessment and proper contingency planning now need to come to the fore. Corporate Boards will need to re-evaluate their approach to managing risk and whether they were prepared for a dynamic global risk of this nature. Many risk registers are ‘static’ in nature and do not explore the interdependencies between risks.
New models of Corporate Governance
The measures introduced by Government to act as fiscal stimuli or relaxations of regulations may lead to governments taking a more interventionist stance in the businesses it has helped. This may take the form of new expectations around Corporate Governance or the rebalancing of priorities across all stakeholders including shareholders.
Workforce of the future
Businesses will need to ensure they are able to attract and retain the best talent in a world where there is an increasing focus on social and corporate governance aspects. Policies and programs to guarantee wellness and mental health of employees will also need revision. Organizational designs, locations, employee value propositions will all need to be re-evaluated.
The focus is on the impact of businesses on communities from an economic, environmental and social perspective and corporate communication strategies need to support this.
KPMG in Canada's Energy and Natural Resources practice is helping the industry reimagine the way they work today in order to capitalize on the opportunities of tomorrow.
Michael T. McKerracher
KPMG in Canada