Balancing act: How to align social and environmental interests in the light of the pandemic and in the pursuit of net zero

Balancing act: How to align social and environmental interests in the light of the pandemic and in the pursuit of net zero

Sharon Darcy, Sustainability First

This paper will address the question: ‘How do institutions, governance processes and business models in the energy sector redesign to deliver fairer social and environmental outcomes – as we move to net zero? What does this mean for the social contract between government, regulators and companies on the one hand – and consumers, citizens and investors, on the other?’ Decision making structures and processes must change to: unlock investment at scale; facilitate behaviour change; legitimise basic decisions as to who pays for decarbonisation and adaptation; and ensure risks and rewards are shared in a fair way (within and between generations). Institutional arrangements will undermine net zero unless people sit at the heart of the solution. And companies will stay stuck in a compliance world focused on yesterdays’ problems with a commodity/supply side mindset rather than transform into net zero service/adaptation providers.

Relevance to the conference

Examining the interactions between the environmental, social and economic challenges of delivering on the net zero transition, the paper will make practical evidence based proposals for how all actors need to change to survive disruption and enable the organisational flexibility, speed of decision-making and democratic mandates needed to steer a more confident path to net zero.

Methodology

This paper will summarise the findings of Sustainability First’s ‘Fair for the Future’ project (2018-2021). Research to date includes:

1. Developing, testing and proving the concept of a ‘Sustainable Licence to Operate’: tested strawman (Figure 1) with key stakeholders in four high-level all-day ‘action research’ workshops and against five deep-dive case studies from other sectors. Carried out primary research on how companies embed purpose.
2. Delivering fairer social and environmental outcomes through a deeper understanding of political and regulatory risk: published stimulus paper on ‘conventional’ approaches to risk in terms of fairness and the environment. Undertook primary research on how companies and investors view risk.
3. Identifying what a ‘Sustainable Licence to Operate’ means for policy, regulatory and governance frameworks, relationships and business models: this work, which includes expert legal analysis of regulatory duties and sustainability, will conclude at the end of 2020.

Results and conclusions

Greater focus is needed on people, leadership and collaboration to move from supply side solutions to a mindset which takes account of how infrastructure, markets and services are operated and to whose benefit. Given the pace of change, blurred decision-making boundaries and plurality of approaches, getting the right values and behaviours in place is key.

Stakeholder engagement – with consumers and communities – needs to reshape governance – not be a regulatory adjunct – and to provide foresight into how social and environmental risks become material in a company and the wider sector. All sides, but particularly regulators and policy makers, are struggling to see how the ‘purpose’ agenda and ‘Environmental, Social and Governance’ factors can best be embedded and translate into the energy sector.

Our research this year will identify the social, environmental and cultural metrics and balanced scorecard necessary to provide assurance to key stakeholders that companies are acting responsibly. This can help forge a new social contract for the net zero age and help the sector break out of price review cycles; creating a more constructive environment and safe space for difficult conversations about distributional issues.