COVID-19 and climate change to transform energy sector

Climate change and environmental social governance (ESG) will transform the energy industry risk landscape, according to Willis Towers Watson. It argues that achieving a satisfactory ESG rating will be critical in enabling energy companies to attract and maintain the support of key stakeholders in the future.

Additionally, the recent oil price war and the reduction in demand for hydrocarbons as a result of the current Covid-19 pandemic will also have a significant impact on future energy industry risk management strategies.

Graham Knight, head of Global Natural Resources, Willis Towers Watson, said: “In these unprecedented and uncertain times, there is no denying that the last 12 months have been challenging ones for the energy industry. However, it is the issue of climate risk and wider ESG factors that will have a significant impact on the future shape of the industry.”

”In short, today’s energy businesses must commit to incorporating ESG standards and climate change into their risk mitigation strategies in order to ensure a sustainable future.”

He added: “We cannot underestimate the immediate challenge faced in loss of demand as a result of COVID-19 and the impact of the recent oil price war, notwithstanding the agreement now reached by OPEC+ to cut production by 10% of global supply.”

”While it is still too early to forecast exactly how these twin factors will play out in the months ahead, the potential effects on the energy industry are obvious; reduced capital expenditure, a reduction of exploration and production activities, lower refining margins and lower business interruption valuations. It will also have a knock-on effect on premium income levels for an insurance market that remains unprofitable for most lines of business.”