Three T’s of Digital Transformation
The economy’s digital transformation will have significant implications for efforts to reduce greenhouse gas emissions and deliver products and services that consumers demand. The government will be instrumental in shaping a competitive, incentive-led market landscape for producers and suppliers to invest in emissions reduction measures. The increase in overall demand for sustainable and low-carbon products presents a significant opportunity for climate policy. To make climate policy resilient in a net-zero context and to allow businesses to estimate the real impact of their resources consumption, governments need to endorse and mainstream digital tools and technologies.
Digitalization can bring about enhanced Transparency, Trust and Transactability to accelerate the transition to a market-driven net zero economy.
Transparency
Purposeful digitalization needs complete transparency. In order to assess key impacts, risks and opportunities associated with climate change, business leaders need access to contextualized and actionable insights across operations, asset classes, and resource deployment. Transparent information will lead to efficient capital markets for environmental and asset-intensive industries like oil & gas. Data transparency across environmental performance frameworks and standards will not only streamline metrics to generate data insights for industry practitioners but also empower consumers by giving them greater autonomy over their sustainability preferences. Prioritizing transparency is essential to give other critical stakeholders like corporations and investors greater visibility to assess their environmental performance and redefine their strategies based on choices that truly reflect a downshift in carbon emissions.
Trust
With increasing evidence that non-financial issues have financial implications for companies, the process of assessing environmental, social and governance (ESG) performance has become central to investors to identify high-impact opportunities for climate action and business growth. In the current landscape, the most common metrics for environmental performance come from non-financial ESG accounting systems. These climate-risk disclosures, however, are not aligned with financial data disclosures due to a lack of standardization across ESG investing methods. Since ESG ratings and rankings suffer from ambiguous benchmarking, erratic assessment methods and non-transparent information, corporate investors have a skeptical view of the ESG data landscape. This significant data processing challenge requires innovative digital solutions endorsed by the government that supports the architecture to build out, scale up, and furnish standards and methodologies to environmental data metrics in service of a low-carbon future.
Transactability
Energy is an essential class of commodity in our global economy, but it has not been able to leverage gains from price premiums via product differentiation. Buyers and sellers in asset-intensive industries like oil and gas need an active market to constantly transact with each other. Without a viable investment infrastructure to support tradability, non-physical energy commodities cannot integrate the gap between sustainability and financial performance in the market. Future climate policy regulations that verify intuitive digital platforms for commodities trading will address the issues of lack of standardization, auditability and inconsistent accounting principles. In this way, energy-based market participants can achieve financial benefits similar to transactors of physical commodities.