Energy transition under the ESG trend

Jin-Li Hu
Professor
Institute of Business and Management, National Yang Ming Chiao Tung University
Taiwan

The ESG (Environmental, Social, and Governance) criteria have been the core of corporate governance. An enterprise does not only aim to make profits but also meet the ESG criteria at the same time. Energy transition is to change the energy structure from the fossil base to the renewable base, which is consistent with ESG. The energy generated from renewable sources is called ‘green electricity’. An enterprise fulfilling ESG has to undertake energy transition at the same time, in order to meet the ‘net zero ’carbon emission target in 2050.

Fossil fuel use is the primary source of CO₂ emission. CO₂ emission is the main cause of climate change. Carbon reduction has been a global effort embodied in the 1997 Kyoto Protocol and the 2015 Paris Agreement. Even though the governments can induce carbon reduction via imposing regulatory measures such as carbon taxes and emission permits, without the participation of enterprises and consumers as the major market players, it is very unlikely to realize the carbon reduction targets in the global market economy. The ESG criteria followed by the enterprises hence become a powerful force to realize the carbon reduction.

Under the ESG criteria, the enterprises have to review and report their environmental footprints, including carbon and water, etc. The consumers can choose environmentally friendly products and services by knowing the validated and released environmental footprints of these enterprises. In order to reduce the carbon footprints, an enterprise can take energy-saving measures such as taking energy-saving measures, using energy-efficient equipment, employing green transportation, buying green energy, having green buildings, etc. These actions to reduce carbon footprints also help realize energy transition from the enterprise side.

The production and use of energy accounts for 75% of the European Union (EU)’s greenhouse gas emissions. EU aims to achieve carbon neutrality by 2050 via a ‘clean energy transition’. EU has been developing a fully integrated, interconnected, and digitalized energy market. Enhancing energy efficiency is a priority, which can be done by improving the energy performance of buildings and increasing the proportion of renewable energy sources.

APEC (Asia-Pacific Economic Cooperation) aims to reduce its energy intensity by 45% between 2005 and 2035 and also to double the share of renewables in the fuel mix. There are many economies of emerging markets among APEC members. In order to make their economic growth sustainable, the energy transition path is a must for them to walk on.

The ESG requirements are not only enforced by individual enterprises but also by the supply chains. United Nations (UN) has been promoting sustainability in supply chains to create global impacts to achieve sustainable development goals (SDGs). Taiwan Semiconductor Manufacturing Company (TSMC), as the leading semiconductor manufacturer in Taiwan, has joined RE100 to commit itself to 100% renewable energy use by the end of 2050. This commitment is because of the requirements from worldwide supply chain partners as well as the mission of TSMC to realize a beautiful future together.

The COP26 held in 2021 has declared to accelerate energy transition, including deep decarbonization, reduction in coal and other fossil fuels use, clean tech investment, etc. The economies in the world will then have their regulations and actions to respond to these international agreements and movements. All enterprises have to adjust themselves for energy transition to sustain their own competitiveness as well as to co-work in the markets for a better world.

The investors in the world now are expected to engage in socially responsible investment. In addition to financial returns and risks, they have to take into account the ESG costs and benefits of their investment. Many investigations by World Economic Forum (WEF) have shown that the investors are willing to invest in the items fitting ESG criteria and the consumers are willing to pay for products and services provided by these ESG-qualified suppliers.

Since the Covid-19 pandemic breakout in 2020, the relations between the environment and public health have attracted great attention. If the modern economy keeps relying on the heavily polluting production and consumption modes, then human, animal, and plant lives will be seriously threatened by the dirty and harmful global economic operation. Energy transition is part of necessary jobs that the global village should and must immediately undertake.

For enterprises, energy transition is not only an obligation but also a market opportunity in the ESG trend. The investors can take advantage to invest for their own profits and the future of the world. The inventors can take the opportunities to invent for their own achievements and the future of human beings. Energy transition creates a win-win situation for the nature and human society. Energy transition under the ESG trend brings people in the world together to sustainably help each other.

E-mail: jinlihu@nycu.edu.tw

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