Trust is critical to all businesses. Without trust, customers and investors would take flight, and profits will soon tumble. In the case of the oil and gas industry, securing trust was once a relatively straightforward affair. On one hand, companies had to demonstrate that they could extract hydrocarbons effectively and at a relatively low cost. On the other hand, they had to show investors that the business is sustainable.
Nowadays, this business model is under threats. Pressures from consumers, investors, and even employees on whether traditional oil and gas companies have what it takes to transition to a cleaner energy future centred on renewables energy.
And the erosion of trust will prove costly: new research from Accenture Strategy estimates that large oil companies stand to lose, on average double-digit billions of dollars each as a result of diminishing trust.
Again, trust is critical to business.
A role in the future?
What’s even more significant is that trust erosion also puts at risk the very license of energy firms to operate. The International Energy Agency reports that the energy industry needs around US$40 trillion in investment capital by 2040. A significant proportion of this money will be allocated to the energy transition, helping firms roll out alternative energies, sustainable products, electrification, integrated services, and cleaner, more efficient fossil fuel solutions.
Companies that are not trusted will likely face investor flight and a higher return on capital thresholds. Coming as this does at a time of already declining margins, this can be an existential threat. We’ve already seen the future of investor distrust through the example of the coal industry. While coal consumption today has stayed relatively steady in absolute terms, investments in and valuation of coal producers have hit a low point.
What can oil and gas companies do in response to these challenges?
Resetting the corporate purpose
Trust is not a fixed commodity: it can rise just as it falls. Energy businesses that can remake their reputations and position themselves as simultaneously providing for prosperity and sustainability stand to win customers and attract investors.
While a lot of people are sceptical that traditional oil and gas companies can play a role in expanding access to affordable, clean energy solutions, energy companies can prove this wrong through a compelling purpose underpinned by real action that validates their intent. Stakeholder trust can be won by companies that successfully recast themselves as allies in the effort to help reinvent the energy system, one that helps drive prosperity and improves living conditions worldwide.
Getting the basics right
To make this shift, energy companies must enhance operational integrity, improve margins, divest noncore assets, and shift to less carbon-intensive portfolios.
By being transparent and open with stakeholders, companies will be able to show that their transformation is more than skin deep. The best way to do this is to communicate openly about operational and financial outcomes, carbon emissions and other pollutants, product safety, and health, safety, and environmental incidents.
Earning the trust of investors and customers
To win back the trust of investors, energy companies also need to place a laser-like focus on accretive returns in the core business through innovation and transformation and supplement those with well-reasoned portfolio investments in new businesses.
And they will need to show they are taking a leadership position in developing a new energy system at scale This involves putting sustainability at the centre of their business with cleaner core businesses, driving a transition to low carbon energy through a portfolio of new fuels, services and products, and supporting the development of a circular economy.
While leading this transition, the industry will have to raise the awareness of the stakeholders by educating them on the complicated undertaking of managing the energy trilemma – sustainable, low cost, and secure energy provision.
Becoming an employer of choice
The energy industry is technology-intensive, and as it increases its adoption of digital technologies and advanced analytics, it has an opportunity to further its position as a leading-edge employer. With its pivot to new businesses that will underpin the energy transition and benefit the society at large, it can regain the ground it has lost in attracting top talent.
Building partner ecosystems
Finally, as energy companies should look to unlock new sustainable value, they will need to capture opportunities in the extended energy value chain, leveraging a broader ecosystem of partners to create and deliver new categories of energy products and services at scale. However, only 33 per cent of oil and gas companies use ecosystems to support new business models, which is lower than any other industry.
But by pointing to their decades of experience in managing capital-intensive projects, energy companies will be attractive to a partner base that should include peers, value chain partners, customers, government agencies, academia, and NGOs (non-governmental organizations). All connected and enabled by advanced digital information and communications technologies.
Purposed-led transformation to thrive
One thing is certain: the energy transition will happen with or without the energy companies that have dominated to date. But the traditional energy companies can play a crucial role in the future history of renewable sustainable energy. By building trust and adopting innovative technologies, spawning new businesses, and expanding the ecosystem of strategic partners, energy companies can enable prosperity, drive sustainability, and thrive economically.