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Jan-2022

The digital route to sustainability

The pace of investment in digitalisation is set to ramp up in response to the need for greater sustainability.

RON BECK
AspenTech

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Article Summary

The past two years have been difficult for many industry sectors – and energy has been no exception. Over the next 12 months and beyond, the industry globally will undoubtedly face continued uncertainty, with challenges in predicting the speed of recovery to the next ‘normal’ economy, differences by region, and country and regional decarbonisation regulatory changes. Yet, despite this, and in part because of it, the drive to sustainability undertaken by many of the leading global enterprises across the sector has been gathering speed.

We have already seen a lot of activity in this area in 2020 and 2021 alone. Lukoil announced in March that it would be planting 33 million trees in the Volga flood plain. In Europe, BP, Shell, Equinor, Repsol, and Eni unveiled ambitious renewable energy and net zero carbon targets. In the US, chemical giants Dow and LyondellBasell joined others in making ambitious commitments to the circular economy. And globally, major players Sinopec, Saudi Aramco, SABIC, ADNOC, and Reliance all announced major initiatives.

This focus on sustainability has gathered momentum through 2021 and is likely to continue to do so moving forwards, as energy businesses must find ways of becoming greener and more efficient and profitable at the same time, to satisfy financial markets, shareholders, employees, and customers. A number of carbon capture and hydrogen projects have been announced in the first half of 2021.

Even before the Covid-induced economic slowdown, employees and customers were increasingly expecting organisations across the energy industries to be good, upstanding citizens and run clean, efficient businesses. The latest generation of workers and customers are demanding greater accountability around sustainability. In a broad industry survey of sustainability patterns by AspenTech and consultant Robert Socolow, 48% of chemical industry respondents report that customers are key drivers of their sustainability initiatives, and 65% say that a broad societal obligation is a key driver.  Organisations know that if they want to protect their brand reputation and attract these people to work for and engage with them, they must build cleaner, safer, more sustainable businesses that allow them to contribute to creating a world fit for tomorrow.

Societal lockdowns have however acted as a further catalyst in this drive to sustainability. As people were forced to stop driving or flying, carbon emissions fell as did demand for transportation fuels, a psychological barrier was crossed. With the evidence that people’s behaviour can palpably impact global CO2 loading, corporate momentum across the energy industries shifted perceptibly towards more aggressive sustainability targets. Most recently, The Wall Street Journal reported that ExxonMobil is now considering a net-zero carbon emissions by 2050 pledge, joining many other global energy companies.

Drivers of sustainability
This emphasis on targets is also increasingly being driven by interest from investors. Over the years, investors have differentiated their portfolios by offering environmental, social, governance (ESG-conscious) funds. These funds now represent a growing proportion of the investment funds in the overall marketplace – accounting for $51 billion of new money from investors in 2020.1 That ability to access finance is pressuring companies further to embrace ESG in order to successfully implement and meet sustainability targets. Indeed, investors today are becoming increasingly active, demanding oil companies implement sustainability targets and commitments to deliver on the Paris climate change agreement.

We are also seeing growing numbers of oil and gas companies adopting net zero carbon emission targets, to be met by a specific year in the future. Now the challenge is to meet those targets. A survey AspenTech completed in June 2021 shows how executives view the criticality of this to maintain competitive advantage (see Figure 1).

This renewed focus on sustainability has resulted in many businesses accelerating their digital transformation efforts as they look to drive efficiencies and achieve corporate objectives. Investing in digital is increasingly attractive to board level directors within these businesses. While in the past investments of this sort were often justified on the basis of their potential to deliver enhanced profitability, today this type of funding is just as frequently signed off based on its ability to deliver a reduction in CO2 emissions. It impacts the bottom line just the same, but from a different angle.

A survey of 186 companies completed in December 2020 by Crystol Energy and AspenTech2 highlighted digitalisation and other new technologies increasing by 14 percentage points in terms of those ranking it as an extremely important or very important post-Covid priority compared to those ranking it as such as a pre-Covid priority.

Digitalisation is a key tool for businesses as they respond to the pressures from shareholders, consumers, communities, and employees to address the challenges of sustainability. We are seeing more money being put into digitalisation initiatives and we anticipate that the pace of this investment will continue to ramp up over time as the twin trends of sustainability and digitalisation continue to operate in tandem.

This dual focus has been quick to achieve traction in a market environment that continues to be characterised by uncertainty. Concentrating on conserving resources and driving operational efficiencies makes sense against the backdrop of an environment of continued uncertainty.

Today, we are seeing little consensus in predicting the speed of recovery to the next-normal economy, or agreement over the predicted trajectory of the energy transition. Most market analysts have presented the future path diverging in at least three widely different directions. One crucial variable at play is regional and global GDP growth, which is seen as very dependent on the persistence of, or recovery from, the worldwide pandemic.

In light of all this, we would expect the ongoing focus on digitalisation to be maintained. Energy companies across the world have accelerated their digitalisation programmes over the past year in response to economic and energy market shocks. The top digital sustainability “apps” areas include better ability to track carbon across facilities and assets (and the extended supply chain), together with innovation platforms to speed up energy transition, and resource optimisation. We expect that the focus and scope of digitalisation over the next 12 months at least will increase.


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