09/11/2022 Earlier this year, we released our C-suite barometer, a report that captures the views of over 1,000 executives around the world. Since then, much has happened, from the war in Ukraine to rising inflation. In this article, we check in with Bob Green, Partner, Mazars, who reacts to key statistics from the report with today’s lens on the energy sector and shares his insights on what’s to come
Growth outlook remains positive for the year ahead despite external pressures
Almost nine in ten (87%) of c-suites in energy, infrastructure and environment (EIE) expect revenue growth over the next year and 89% are confident that they are capable of overcoming a crisis.
Bob Green: When you think about the external drivers of the energy sector, two things come to mind. The first one is decarbonisation, which is driving a lot of investment into renewable energy – a demand that is underpinned by governments and regulatory change, as well as by the public call to solve the climate crisis.
In addition, the war in Ukraine has heightened concerns about energy security, which is provoking governments to explore ways of becoming energy independent and avoid being reliant upon Russia, which will further drive-up investments in the sector.
At the moment, we are experiencing higher energy prices, so the question remains as to whether that will feed directly into corporate balance sheets or whether windfall taxes will apply to alleviate the living crisis. Overall, there is an expectation that governments will not be willing to introduce anything into the marketplace that could slow down investment – they need to see continued high levels of investment to increase renewables, meet the targets set forth in the Paris Agreement and respond to the demand for energy security, which steadily rises with population growth.
When we conducted the survey, the Ukrainian war had not started, and inflation had yet to become a concern. How do you think these added pressures will impact the growth outlook?
Bob Green: Uncertainties remain. It’s not clear when the Ukrainian war will end, but we can say that it’s not going to end quickly and that the impact will be long lasting. In terms of inflation, I think the initial assumption was that it would be a spike rather than a sustained issue, so I do expect that rising interest rates continue to be on the agenda, which will have an impact on the economies – and therefore energy demand could drop as output drops. However, at this stage, there’s no consensus on how things will fare as it’s an evolving situation, and one that we haven’t lived through in quite some time.
EIE business leaders expect a technology transformation
Over seven in ten (74%) EIE businesses say their business will undergo a technology transformation, slightly higher than businesses globally (68%).
Bob Green: The rise of technology outside is requiring significant investment within the sector. In response, we’re seeing heavy rollouts of fibres and data centres to cope with the demand from the overall economy, and they are typically energy intensive.
In parallel, there is a lot of investment going into electric vehicles (EVs), vehicle charging, and similar sustainable initiatives – which speaks to the tech transformation across industries, and unquestionably has a strong influence on the energy sector. Moving forward, the use of AI is going to become increasingly important in the way that energy demand is managed, and production is tailored. It will serve as a vital tool in helping businesses succeed in the changing marketplace.
In the renewable energy sector, there is a new focus on the rollout of batteries, which have an important role to play in helping bridge the gap between generation and demand. While the sector is very global, certain regions are prioritising investments based on capital and needs. For example, in Europe and the Americas, there is a bigger focus on hydrogen whereas the Middle East is looking to shift from an oil-and-gas-based economy to a renewables economy, which will require investment in the newer technologies that can support this transition.
Cybersecurity and remote working: changes that are here to stay
C-suite leaders cited remote working as one of the biggest changes to business. As it becomes more prevalent, businesses are ramping up their cybersecurity efforts. Nearly half (48%) of EIE businesses say IT security enhancement will be a long-term change, while 46% believe remote working will remain for the long-term.
Bob Green: When it comes to cybersecurity, I don’t think the energy sector greatly differs from others in its enhancement efforts– it is a universal shift that is responding to a prevailing threat across sectors, ours included. If you talk to our cyber team, they can attest to the massive increase in demand and rising fear of hacking and potential disruption to supplies.
There have been a few high-profile cases in the sector where hacking has caused disturbance. The energy sector deals with a lot of consumers, and therefore cyber protection is a huge priority and I believe that will remain the case for the long-term.
As for remote working, I think this too is a trend that is here to stay. It’s proven its productivity, but at the same time, we can’t deny the adverse effects it can have on business culture, training and development, so I expect it will remain a change and that our sector and many others will continue with the hybrid models of working with some days in the office and others at home.
Consumer and investor pressure is driving companies to boost ESG efforts
69% of EIE leaders have reported an increase in their focus on ESG as a result of Covid-19. This is largely attributed to external pressures - both investor expectations (52%) and client expectations (44%) are seen as important drivers of ESG investment for EIE businesses.
Bob Green: ESG is right at the heart of the energy transformation, so the energy sector is at the heart of this ongoing discussion. Recently, I was speaking with a client on how ESG is both shaping the way they invest in new projects and in the way they manage and operate existing assets. It’s a conversation that represents the overall movement, and one that is typical to companies across the sector. Of course, some are more developed than others, but every decision about investments is taking ESG into account.
What’s driving it? Regulation and reporting disclosures are certainly part of it. Investors are also responding to their stakeholders to show they are responsible, are meeting their Paris and net zero targets, and are actively working to reduce any adverse impacts they may cause. It’s a multi-faceted pressure and I can only see it ramping up going forward.
We’re also seeing companies take on new territory to meet sustainable goals and shy away from energy sources that are poorly regarded. The perception around coal, for instance, is cautious – people are reluctant to touch it and across the board, you see all the major oil companies moving into renewables to show that they are not just oil and gas supplying but can also diversify and react to the growing demand for renewable energy.
The transformation we are seeing in the sector will be long-term. A big part of the world looks to phase out carbon-based fuels over the coming decades, and as they begin to do that, we can first see them shifting to carbon-based fuels that are considered ‘less dirty’ on the spectrum, like gas. It’s not something that will change overnight, but we can expect to continue to see several transitions within the sector as it moves towards a more sustainable model.