GUIDELINES FOR AN INTEGRATED ENERGY STRATEGY

A strong governance framework for your integrated energy strategy should be incorporated into your management structure, in alignment with and as part of the overall governance of your company. It will help to ensure that accountabilities and responsibilities are understood and honored throughout the company, and will support decision-making and progress towards your vision.

• A strong governance at board-level for energy and climate-related risks and opportunities;
• Executive management commitment for the vision of the integrated energy strategy and cross-functional accountability with responsibilities defined for each function;
• Carbon and energy impact assessment in business planning and procedures, using mechanisms like carbon pricing.

Overseeing a company’s response to energy and climate-related risks and opportunities is a board responsibility. This means that adoption and overseeing of an integrated energy strategy is typically a strategic decision made by the company’s executive management. When designing your company’s governance for the integrated energy strategy, it’s important to consider the following:

• How and when the board is informed about the integrated energy strategy;
• Whether the board considers energy and climate-related issues when reviewing and guiding strategy, risk, budgets, performance objectives, capital expenditures, acquisitions or divestitures;
• How the board monitors progress against targets for addressing energy and climate-related issues and the integrated energy strategy;
• How the perspectives of upstream and downstream stakeholders will be communicated to the board;
• Whether the company has assigned energy and climate-related responsibilities to management-level positions or committees, and whether such management positions or committees report to the board;
• How the board and management are incentivized to successfully manage energy and climate-related issues and the success of the integrated energy strategy.

Accountability for the integrated energy strategy should not sit with one function. Many functions in the company have shared responsibility for energy and carbon management, both in terms of the actions they take and the decisions they make.

A framework that defines roles, responsibilities and activities across the company is a good place to start. It must reflect the way people work and support strategy implementation, making it easier to hold people to account.

Changing the culture and mindset of colleagues across your company is likely to be one of the biggest challenges you’ll face in developing and implementing the integrated energy strategy. Governance plays an important role in establishing structures, principles, practices and processes for behaviors within the company. In particular, leadership from senior management and their tone will be key to stimulating this change.

Internal carbon pricing helps to deliver GHG emissions savings in a cost-effective manner by prioritizing the most cost-effective measures and ensuring that all investment decisions consider the carbon impact. It means that climate risks and opportunities can be presented in a common language that is easily understood. It also enables carbon targets to be integrated into existing processes, such as project planning and reporting.

Internal carbon pricing involves setting an annually fixed cost for each carbon dioxide emitted. There are two different options:

Shadow carbon pricing: A theoretical internal cost of carbon applied in project planning processes to test the feasibility of investment decisions and to support business cases to shift investments to low-carbon options.

Internal carbon tax/fee: Requires actual transfer of funds within the company either by financing carbon credits, or by financing internal projects to reduce GHG emissions or for rewarding actions which lead to GHG emissions reductions. In some cases, an internal cost of carbon will appear within the company’s profit and loss statement, and individual business units have a set carbon budget.