The social aspect of ESG within the energy and natural resources industry

For energy and natural resources businesses, understanding your supply chain is key to getting the social element of ESG right. From a business continuity point of view, it is important to fully understand all the connected parties within your supply chain and their individual policies. Key areas to consider are:

• health and safety;
• adherence to labour laws such as modern slavery and child labour; and
• UN sustainable development goals, a common area of reporting within this sector, which covers diversity and inclusion, gender equality, and working conditions.

There is an opportunity for businesses in the sector to engage with their supply chain and commit to making positive changes that will be mutually beneficial.

Sheena McGuinness, RSM UK’s head of renewables and cleantech, comments:

‘Supply chains are particularly important to decarbonisation because they generate around 60% of all carbon emissions. Tax leaders are key to understanding the inputs making up the supply chain and then formulating the plan for a sustainable supply chain.’

The IEA’s Energy and gender report describes the energy sector as male dominated with women representing only 16% of the workforce, wages for female employees 20% lower than male employees, and under 14% of women in senior roles. In 2022, 78% of the sector's jobs were held by white employees.

To meet diversity and inclusion goals, companies should have inclusive policies and practices that prevent discrimination and promote diversity at all levels of the organisation. 

Sheena McGuinness comments: ‘Having a diverse workforce can quite literally pay dividends. McKinsey found in a study that ethnically diverse workforces are more financially successful and companies with a gender diverse executive team were 25% more likely to have above-average profitability.’

According to ONS data, employment in the mining, energy and water supply industry has declined by 15% from April 2021 to April 2023, which indicates that retention is a challenge for the sector.

Getting your people strategy right can really help with recruitment and retention of your key staff.

Rich Hall, head of sustainability in our ESG practice comments: ‘Employees or potential employees are far more attuned to ESG than they ever were. Increasingly, employees are looking to work for a business with values and a purpose more aligned to their own. So, clearly articulating your ESG culture can be a real differentiator for your business.’

With inherent dangers facing exploration and engineering workers in the sector, there has been a strong focus on health and safety. The Health and Safety Executive report improvements have been made in reducing the number of injuries but the sector has one of the highest rates of occupational ill health, due to fatigue and stress. 

David Hough, partner in our energy team comments: ‘Our mining clients place a significant focus on workplace safety with significant capital expenditure budgeted each year to reduce the risk of injury. Many businesses treat reducing such injuries as a KPI which is reported to investors on at least an annual basis.’

This refers to how a company engages with and contributes to the social and economic development of the communities where it operates or has an impact. For example, supporting local businesses and communities and creating positive social value.

Sheena McGuinness comments: ‘Community engagement and the wider social aspects within ESG are becoming more front and centre in the evaluation and perception of companies by investors and the wider public. We have seen lobbying of the UK government to amend the Companies Act to place all stakeholders on a par with shareholders. This has helped to bring social considerations to the fore and removed the option for companies to pursue profits at the expense of workers, communities and nature.’

David Hough comments: ‘Community engagement in areas of mining activity is critical in obtaining a ‘social license’ from local groups to allow mine development in the area. Typical activities include development of local infrastructure and training and employment initiatives.’