Concepts & How ToAugust 13, 2021by Sebastian Dürr

ESG Trends in 2021 – Part I: The E in ESG

ESG Trends in 2021

ESG is gaining more and more traction. Not only are ESG investments on the rise, but growing numbers of companies are taking advantage of ESG and implement them into their daily operations, too. What are the ESG trends in 2021 and for the coming years? Here is part one of a four-part series of blog posts where we share our views – starting with environmental aspects.

ESG Trends in 2021 – The “E” in ESG

Fighting climate change has become a high priority on the political agenda. The Biden administration in the United States, the European Union and China, among other nations, take action and have announced climate-related goals. So the race to net-zero emissions has started, and we will arrive at the finish line by 2050 / 2060.

But it is not only the governments and administrations that have eager plans for climate protection. Many businesses and companies have also announced to become climate neutral. And many of them have identified climate-related risk as a top priority for their business models.

Becoming net-zero – how hard will it be?

Let’s have a look from a different altitude to understand the net-zero challenge better. The Lawrence Livermore National Laboratory provides Sankey diagrams for energy consumption and CO2 emissions in the United States. We have combined them into one illustration based on 2018 numbers.

Energy Generation, Consumption and CO2-Emissions in the United States 2018

The Lawrence Livermore National Laboratory estimated the energy consumption within the United States in 2018 to be 101.2 Quads or 29,646 TWh sourced from renewables (11.4%), nuclear energy (8.3%) and fossil fuels (80.2%). Generation from renewable sources like geothermal (0.2%), solar (0.9%), wind (2.5%), hydro (2.7%), and biomass (5.1%) were estimated to be 3375 TWh.

11,195.3 TWh of electrical energy was generated and distributed to the residential (1465.35 TWh), commercial (1377.43 TWh), industrial (952.48 TWh), and transportation sector (8.79 TWh). The total energy consumption of all sectors was 22,259TWh (residential 3488TWh / 15.7%, commercial 2770TWh / 12.4%, industrial 7708 TWh / 34.6%, and transportation 8294 TWh / 37.3%).

Fossil fuels account for almost all of the 5268 million metric tons of 2018 CO2 emissions (petroleum 45.2%, natural gas 30.9%, and coal 23.9%).

Natural gas has a share of 31% of the energy mix and accounts for around 31% of the total CO2 emissions. When it comes to coal, the numbers are different. While its share of the energy mix is 13.1%, it accounts for 23.9% of total CO2 emissions.

Another factor is how efficient technology is. How much of the energy stored in a fuel (like coal or petrol) is usable? For instance, about two-thirds of energy released from coal in a coal-fired power plant discards unused (thermal energy) in the environment.

The importance of efficiency becomes evident in the transportation sector in particular. Only 1744 TWh or around one-fifth of the total 8294 TWh (100%) consumed by this sector fall in the “Energy Service” category, while 6565 TWh or nearly 80% are “Rejected Energy”. Transportation is heavily relying on fossil fuels, while energy conversion is not very efficient in this sector.

So the vast amount of carbon dioxide emissions (1911 million metric tons / 36.3% of total CO2 emissions) originating from this sector is easy to understand.

Now at the latest, the order of magnitude of the net-zero challenge becomes evident.

2018 to 2020 Comparison

The Corona pandemic had effects on businesses and society. And these effects may reflect in energy consumption as well.

Energy generation from solar and wind increased by 88.2TWh and 140.7TWh, while energy generation from geothermal, hydro and biomass decreased slightly (-0.9TWh / -29.3TWh / -175.8TWh).

Nuclear energy, coal and petroleum saw a decrease, too (-55.7TWh / -1198.7 TWh / -1377.4 TWh). For petroleum, an explanation could be the reduced mobility during the pandemic. The total energy consumption dropped by around 2445TWh compared to 2018 numbers.

The Way to Net-Zero

With economies and societies highly dependent on fossil fuels, the way to net-zero seems challenging at first. Numbers for energy generation from renewable sources are rising. Not only in the U.S. but in many other countries, too. So have the numbers of EVs. But as shown above, there is still a long way to go. Becoming net-zero will shape the way we do business and the way we live. So how to start and how to get there?

How to get there

There are several options, and most likely, we will need to employ all of them.

Reduce and Recycle: Not to be misunderstood as efficiency, reduction of energy usage is about avoiding energy consumption beforehand. We are living in an “always-on” society. There is plenty of space for improvement with many appliances on standby or in idle mode consuming energy. Even if the numbers may sound small, they sum up. Recycling sometimes comes in less obvious ways. Examples are workwear companies like BLÅKLÄDER or Snickers. Recycling workwear at the end of the lifecycle can be difficult. Making and using fabric from recycled water bottles – as a way of upcycling – contributes to material efficiency.

Efficiency: Using efficient technologies (e.g. LEDs for the lighting of office spaces) will reduce energy consumption and power demand. The technology is there. The long refurbishment cycle for office buildings and other assets may hinder a faster adoption of those technologies.

Switching to different technologies: Using coal to generate electrical energy is well proven and cheap. On the other hand, the specific CO2 emissions are higher compared to those from natural gas. For commercial customers, heat pumps or biomass could be a path to abandoning fossil fuels. Transportation still causes significant amounts of the total CO2 emissions. One solution is the electrification of transportation. Companies are already scaling up their fleets from petrol to EVs.

Compensate: Some emissions just can’t be avoided. In some cases, business travel has to happen, and a videoconference will not replace a personal meeting. Offerings to compensate for those emissions are available – so that a flight to meet a client or customer becomes climate neutral. Procurement, e.g. of print products, is another way where compensations for climate-relevant emissions are possible.

Carbon Capture and Sequestration: CCS is an emerging technology that enables the capture of CO2 from the atmosphere. It is also possible to sequestrate CO2 from exhaust gases. The sequestrated CO2 is then stored or used for other processes. This technology has the potential to reduce CO2 efficiently from the atmosphere and contribute to limit climate change.

Digital-first: Using paper is sometimes inevitable. But there are many cases where printouts are just not needed anymore. So Hoka One One will no longer send you a printed invoice but send a PDF version instead. And Keen is offering online consultations / life-chat to avoid unnecessary returns.

Innovation: Emerging technologies will help to achieve net-zero. One example is the developments that happened during the last decades at the electrical grid. It is now possible to manage energy generation and consumption in an unprecedented way. Innovation is not only about management systems but also about efficient ways for energy storage and grid integration.

Stranded Assets: While some technologies emerge, others will become stranded assets. Banks are phasing out financing of coal projects. Coal might be a “cheap” way to generate electricity, but it comes with above average amounts of CO2 emissions.

Report: Many companies already report in detail about ESG. When following a reporting standard, the progress becomes transparent and will also aid the decision-making process. The SDGs are a good starting point for that so companies can identify the most relevant aspects and focus on them, to develop ESG strategies.

Challenges along the way

There will be challenges along the way to net-zero emissions. One is to achieve net-zero cost-neutral. Grid-parity of renewable energy has become a reality in many countries. But it is not only about generation. It is also about efficient energy storage and distribution.

The SDGs are global goals. When talking about net-zero, it is not only about developed countries that can afford to do so. The challenge becomes bigger as soon as emerging / developing countries start to scale up their energy demand. Ideally, these countries could avoid the path to fossil energy and use renewable/sustainable energy sources instead.

Depending on renewable energy at a large scale will make it necessary to re-think energy storage options. At grid-scale and on a more decentralized level, too. Right now, lithium-ion batteries are the gold standard. This technology needs raw materials that are difficult to source and come with an impact on the environment. And we need to find efficient ways to recycle lithium-ion batteries. As mentioned above, new technologies like solid-state batteries emerge. These could be of particular interest for mobile applications since they have a higher energy density and longer lifecycles.

There is more than just energy storage. It is also about the electrical grid and keeping it stable at every moment with a growing share of renewable energy and dynamic loads at the same time while energy generation becomes more and more decentralized.

What others are doing

There are numerous examples of companies that announce climate goals or take action. DHL is building its fleet of delivery EVs now. UPS is sourcing the next-generation delivery trucks from the Nasdaq listed company Arrival. The vehicles are build in what Arrival describes as micro-factories located closer to the customer. A completely different philosophy compared to traditional car manufacturing. There are very individual solutions, too. The Royal Mail puts electric trikes to the trial to reduce emissions while being flexible on narrow streets and within cities. Netflix is on its way to net-zero by the end of 2022. And Nike announced zero carbon and zero waste to protect the future of the sport.

More examples are:

Ikea (climate positive by 2030),
Microsoft (net-zero by 2030 and with the additional goal of removing all carbon emitted since it was founded in 1975),
BP (net-zero by 2050),
Total (net-zero by 2050),
Apple (net-zero by 2030),
Facebook (net zero value chain by 2030),
Tesco (net-zero by 2035),
Vodafone (net-zero by 2040),
Burger King (net-zero operations by 2030).

A huge undertaking

Becoming net-zero, climate positive and reduce the effects of ongoing climate change is a huge undertaking. It requires governments, businesses and companies, and society as a whole to manage and steer this transition. We will likely see stranded assets along the way. However, the transformation is already on its way. The way to net-zero is a marathon, not a sprint. Adjustments will happen along the way. And most important: E is not only about energy.

E is not only about energy

Clean energy and CO2 emissions dominate the public discussion and the news. Fighting climate change and keep global warming below 1.5°C is strongly related to CO2 emissions. However, it is also related to sustainable development and efforts to eradicate poverty.

Droughts, wildfires and deforestation – as results of / or contributing to climate change – are aspects that need attention, too, since these are directly interlinked to biodiversity. Climate change has a significant impact on oceans, rivers, and coastal areas, too.

Oceans represent a substantial part of our biosphere and are a cornerstone for the water cycle. Oceans hold 97% of the total water on earth, around 80% of global precipitation occurs over oceans, and 86% of global evaporation happens here. Evaporation from the sea surface influences the movement of heat in the climate system, and the total amount of atmospheric water vapour influences global rainfall.

So the E is also about water. And it is about waste and emissions along supply chains. There is no doubt that less developed countries will suffer more from climate change. So it is a good idea to foster sustainable development and the use of green energy in these countries, too, to fight poverty and climate change at the same time.

Balancing Natural Capital

FDR wrote about natural capital and balancing the budget of our resources back in 1937. Today we talk about aligning corporate reporting in a way that equals natural with financial capital. ESG, when understood as an operating system, offers the ability to report environmental information with the same quality as financial information. So when it comes to the E in ESG, we are talking about many aspects, not only energy, that influences the balance of the biosphere. And a good balance is needed indeed and will keep the biosphere inhabitable.

About NordESG

NordESG is an independent consulting firm that advises on sustainability and ESG. We support companies in navigating their sustainability landscape and develop strategies and concepts individually tailored to their requirements. This also includes managing the transition to CSRD. We look forward to hearing from you via email. You can also make an appointment with us directly for a free introductory meeting.

ESG Trends in 2021 – Part I: The E in ESG