Climate change and environmental social governance (ESG) will transform the energy industry risk landscape, Willis Towers Watson said in its annual Energy Market Review report. The recent oil price war and the reduction in the demand for hydrocarbons as a result of the COVID-19 outbreak will also have a significant impact on future energy industry risk management strategies, Willis Towers Watson said.
The report found that achieving a satisfactory ESG rating will be critical in enabling energy companies to attract and maintain the support of key stakeholders.
Other key findings included:
“In these unprecedented and uncertain times, there is no denying that the last 12 months have been challenging ones for the energy industry,” said Graham Knight, head of Global Natural Resources at Willis Towers Watson. “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 into their risk mitigation strategies in order to ensure a sustainable future.”
Knight added that the industry should not underestimate the impact of COVID-19 and the recent oil price war.
“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,” he said. “It will also have a knock-on effect on premium income levels for an insurance market that remains unprofitable for most lines of business.”