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Why good governance in the energy sector in 2023 is more important than ever

Why good governance in the energy sector in 2023 is more important than ever

25 April, 2023
Europe Corporate Corporate Administration

In 2023, good governance in the energy sector has become more crucial than ever in light of the UK Government’s recently unveiled plans to ensure the country meets its commitment to ‘net-zero’ emissions by 2050. Chris Mayfield, Head of Business Development for Corporate Services, EMEA discusses why energy companies must take steps to mitigate their risks and operate under a good governance framework to remain competitive and sustainable in the long term.

What is Powering up Britain and how does it affect corporate governance?

Powering up Britain is the Department for Energy Security and Net Zero delivery plan which details the UK Government’s strategy to achieve energy security, economic opportunities, and net zero commitments. 

Powering up Britain is not the first government paper to be released on the topic of sustainable energy and for many years now, energy companies worldwide have been painted as both the villains and the potential heroes in the climate change story. But Governments are not the only ones putting the energy sector under the microscope. In recent years we have seen the emergence of a more environmental, social and governance (ESG) focused investor and a more ethically conscious consumer – both of which want to be part of the climate solution rather than financing ‘non-ESG’ energy initiatives. 

The challenge for energy companies ironically, however, is that you can’t just flick a switch to become a ‘greener than green’ company with perfect ESG credentials. The energy transition involves enormous amounts of planning, development, and investment, and that takes time. It’s a message for many investors and consumers, which is difficult to come to terms with - leaving some energy companies being painted in an unfairly bad light. 

In the interim however, there are proactive measures that an energy company can take in other areas to ensure good corporate citizenship - helping to keep governments, regulators, investors, and consumers on side. 

What actions can energy companies take to achieve good governance? 

Mitigate the risk of non-compliance across your international corporate structure. 

Non-compliance increases the risks of penalties, fines, increased regulatory scrutiny and of course, negative press and public perception. Here are steps you can take to remain compliant:

  1. Establish a strong framework around global entity compliance; understand your reporting obligations in the countries where you have a presence and prepare the required information well in advance.
  2. Maintain a ‘lean’ corporate structure. Dormant entities can cost tens of thousands of pounds to maintain. Cut ‘dead wood’ from your structure to save money and reduce risk. 
  3. Regularly review the substance requirements in countries where you do not have ‘boots on the ground’ and be prepared to adapt as the regulations change.
  4. Proactively ‘horizon scan’ the regulatory environment in the countries where you operate to ensure you are not caught out by changing legislation at the last minute. For some regulatory changes, it may make sense to redomicile your structures and this takes time. 
  5. Do more than just scraping through to meet the minimum requirements. Adopt a ‘best-practice’ approach to statutory and regulatory compliance across your corporate structure. 

Establish robust ESG policies: 

  1. Develop clear and comprehensive policies that address ESG issues. These policies should be regularly reviewed and updated to ensure they remain relevant. 
  2. Engage with stakeholders, including employees, investors, customers, and local communities, to understand their concerns and address any issues that arise.
  3. Improve transparency to provide regular and balanced reporting on your ESG performance, including progress towards meeting sustainability targets and any incidents or breaches that occur. 

In summary, energy companies need to take a proactive approach to governance if they are to remain competitive and sustainable in the long term. By demonstrating a strong commitment to compliance and reporting regulations, companies can build trust with stakeholders, avoid potential reputation damage under the microscope of world’s media and attract investment and consumers. 

How can Ocorian support the energy sector in achieving good governance?

Ocorian works with over 8,000 clients globally providing entity administration and substance services. 

By working closely with local regulators in the regions we service, we can help our clients understand how local regulations are interpreted and prepare for new legislation coming down the line. 

In doing so, we help our clients prepare for the risks of tomorrow as well as ensuring their corporate and investment structures are in good standing today. We minimise the risk of non-compliance, avoid fines and protect from the risk of reputational damage. 

For more information on how Ocorian can support your company in managing the ever-evolving landscape of compliance and reporting obligations, reach out directly to the team.