Strategic consulting firm Bain & Company has released the second edition of the annual Bain & Company Energy and Natural Resources Report, based on a survey of more than 1,000 energy and natural resources executives from around the world to understand how the energy and resources transition is happening in real time, what technologies and opportunities they are prioritising, and what are the most challenging aspects of balancing traditional business demands with new demands to operate more sustainably.
Bain & Company analyzed the strategy and resource allocation of 125 of the top energy and natural resources firms by market capitalization to determine how much their actions support what they’re saying publicly. This research found that over the past two years, these companies have become more ambitious in new markets and are allocating resources toward their lower-carbon goals.
“It’s been a year like no other for energy and resource executives as they’ve grappled with climbing inflation and ongoing supply chain challenges,” said Joe Scalise, global head of Bain & Company’s Energy and Natural Resources practice. “Therefore, it might be surprising to hear that they remain optimistic on the energy and resource transition while showing tangible signs of progress ” .
Some of the conclusions drawn in the report based on the survey:
- . 88%say reducing Scope 1 and 2 emissions is a key priorityfor their company, 47%expect their company to change significantly in the next 10 years—up from 36% in 2020, and 96% expect the industry to make progress toward net zero by 2030.
- Executives expect to reduce emissions by 28% by 2030 and 61% expect to decarbonize on a faster track than the world as a whole.
- , and 72% believe they’ll have a new growth business that will complement or replace their core by 2030. 63% of power utilities executives expect their core business to grow rapidly over the next decade due to more electrification.
- .A third of companies in mining and oil and gas say they’re struggling to attract and retain talent for their core business, and across sectors, executives cite a resistance of incumbent culture to change. North American oil and gas companies are almost twice as likelyto be delaying investment in new business areas as those in Europe, perhaps due to greater clarity on regulations in Europe.
Increasing capital allocations to new growth areas
For many companies in the energy and natural resources sector, the path to success depends on investing in new growth, and often low-carbon, ventures, such as renewable power generation, carbon capture and storage, green hydrogen, circularity and new forms of electric mobility. The executives Bain surveyed say they are investing 23% of their capital to new business ventures, up from 16% in 2020.
“We have seen a marked shift in what the energy and resources transition means to executives over the past year,” said Peter Parry, chairman of Bain & Company’s global Energy & Natural Resources practice. “Energy and natural resources industries are moving from ambition to action. While close to a quarter of capital expenditure in 2021 was directed toward change, we can expect this to grow toward 50% by 2025, establishing a transition path with greater clarity ” .
Satisfying the rising demands of investors
Bain & Company partnered with Rivel, an investor research firm, to interview 89 investors and analysts about how the energy transition is shaping investment decisions in the energy sector. This research showed the transition is squarely at the center of the agenda for investors, shaping perspectives on individual companies as well as sectors.
- Investor perspectives on oil and gas: For oil and gas, cash flow is the most important investment factor; potential growth in production ranks last. While 73% of investors want oil and gas to invest in lower-carbon markets, they remain concerned about capital allocation and declining demand.
- Investor perspectives on utilities: In utilities, investors see opportunities in renewables and electrification, but they are most concerned about affordability and reliability. Successful executive teams will mitigate risks on affordability, reliability and regulation
For executives in both sectors, embarking on any new, low-carbon energy businesses will require a clear connection to the principles of the core business. Now more than ever, they’ll need to show how their capabilities, expertise and customer relationships make them the best owner of the new business.
Responding to the war in Ukraine
As the war in Ukraine grinds on, energy and natural resources companies have moved past their initial reactions of shock in order to integrate the crisis into their medium- and long-term planning. For most companies, a critical component of their response to the crisis is finding ways to make their businesses, operations and supply chains more resilient. It’s becoming increasingly prudent to prioritize resilience over low cost or efficiency.
Resilience is critical, but it is also expensive. For longer-term survival, companies need to pay attention to the basic principles of leadership: innovation, impact and economics, and they’ll need to determine where it makes most sense to invest.
Improving circularity in plastics
As attention has focused on the problem of plastic pollution in the environment, governments and the private sector have taken steps to promote recycling and reduce plastic waste. However, Bain’s research shows that at the current pace, only 10-14% of plastics will be recycled by 2030, falling well short of announced targets. And while the market for recycled plastic could grow significantly, it is likely to make up less than 15% of total plastics supply by 2030.