Managing Risk on the Energy Transition Journey

Managing Risk on the Energy Transition Journey
Aon Insights Series Asia

06 of 09

This insight is part 06 of 09 in this Collection.

November 12, 2024 5 mins

Managing Risk on the Energy Transition Journey

Managing Risk on the Energy Transition Journey

New approaches to risk management are essential for the energy sector to seize opportunities coming from the transition to net zero.

As a growing number of countries strengthen their legislation for, and commitment to, net zero targets, the energy sector is undergoing a major transformation. Business models, operations and financing are all evolving as organisations strive to meet ongoing demand for energy while building capacity to deliver products and services required for a future economy reliant on renewables. In this article we examine key risk considerations for energy companies and highlight how global provider, PETRONAS, is addressing these risks to support stability and growth in their business network.

Balancing core business while making progress

For any energy company, the transition to delivering abundant energy with lower emissions is a balancing act. Billions of people and millions of businesses are reliant on a secure supply of energy for our global economy and society to thrive. In the move towards a world where all energy needs can be met with zero emissions, companies like PETRONAS are finding new innovative paths forward without compromising energy security for customers and end users.

“The UN talks about a just transition which ensures that in fueling the world with clean energy, efforts are being promoted in a way that is as far and inclusive as possible to everyone concerned, creating decent work opportunities and leaving no one behind. This is how we have aligned our short-term strategy to ensure no one loses out as our business adapts to meet our goal of achieving net zero by 2050.”

Norliwati Abdul Wahab
Group Chief Risk Officer, PETRONAS

Managing Risk on the Energy Transition Journey

Walking the line between secure energy supply and meeting emissions reduction targets requires rigor when it comes to disclosing actions and progress. Managing greenwashing risks and potential consequences for reputational issues with stakeholders is critical for any business. This is particularly the case for the energy sector where scrutiny of climate-related commitments and progress is perhaps at its highest.

“Our approach is being transparent about our commitment and the steps we’re taking for the energy transition” says Norliwati Abdul Wahab, Group Chief Risk Officer for PETRONAS. “The expectation from all our stakeholders is that we must make progress while considering all who will be impacted. We are careful to manage the reputational risk of our disclosures by making sure we have tools and measures in place to provide data that is accurate, audited and credible as well as complying to greenwashing guidelines.”

Fuelling innovation

Not only is the trade-off between traditional and renewable energy important for energy security but it is also essential for funding. For businesses like PETRONAS, returns from existing core business must be set aside to fund and grow their renewable energy aspirations. This discipline to allocate funds into new energy business makes a compelling case for lenders to secure external funding for these new ventures.

“When it comes to budgets and capital allocation, if you only consider returns and risk, a lot would go to our core business of supplying energy from existing oil and gas business,” says Norliwati. “We need to be disciplined in allocating a sizeable portion of our internal capital to fund new business growth whilst continuing to act on our commitments to net zero. This is an important element and a display of credibility and reassurance to various stakeholders and lenders that the targets we disclose are realistic and based on where investments are being made.”

Moving into uncharted territory

Growing demand for PETRONAS’ new capabilities in carbon capture and storage are also introducing new challenges and risks for the business. This space plays an essential role in keeping supply viable while reducing the emissions from energy production. “Significant upfront investment is required to keep advancing within this area despite having proven technology,” says Norliwati. “Safeguarding ongoing investment and progress requires a deep understanding of the many risks involved in moving captured carbon through the different jurisdictions, and where responsibilities lie if anything should happen to it. Then, the storage side of things also comes with many unknowns, including public acceptance of the facility and government legislation on ownership of the emissions.”

For innovations like these, it’s vital for PETRONAS to enter collaboration with oil and gas producers, shipping companies, governments and communities, and with insurers who can offer expertise and understanding of the complex cross-sector opportunities, impacts and risks involved.

For companies working at the cutting edge of innovation to secure the future for energy supply and better climate outcomes, sustaining and supportive insurance partnerships are critical. These partnerships demand continuous dialogue to secure the necessary risk transfer solutions to support these businesses on their energy transition journeys.

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