Energy and chemical operators are facing increased scrutiny around environment, social, and governance (ESG) practices. While pressure is mounting for operators, industrial equipment providers have faced limited pressure regarding ESG practices. Equipment providers have been focused on reducing the environmental footprint at their manufacturing plants by reducing energy and water consumption and increasing the role of renewables in their operations. Going forward equipment providers will need to be more active in helping operators reach ESG targets. This will be accomplished through repositioning product portfolios, introducing new products, and redefining their value proposition.
Industrial equipment providers will play a significant role in reducing emission, minimizing waste, and improving air quality in the energy industry. As operators publish sustainability reports they will need to continuously improve on key metrics such as GHG emissions, air quality, waste, spills, and incidence rates. In the near-term, operators will continue to rely on operational improvements, fuel switching, and routine maintenance to improve these metrics. Long-term, operators will have to rely on equipment providers to achieve ESG targets. As investors pressure operators to increase transparency, the need for equipment monitoring, leak detection sensors, and other digital equipment will grow. Technological innovation in equipment is also needed as operators are increasingly interested in equipment which consumes less energy, is light weight, and has a smaller footprint.
The shift towards ESG practices provides a great opportunity for industrials to reposition their product portfolio. Winners in this space will understand their product portfolio in the broadest terms and have offerings reflective of ESG needs of operators. Equipment providers must clearly define their ESG value proposition and quantifiably benchmark offerings with competitors. This may require additional testing and the development of new go-to-market strategies, but equipment providers who do so will have a competitive advantage. Introducing offerings tailored to ESG practices can boost sales as it as the potential to attract new customers. The value proposition of an offering will need to include ESG benefits as operators are increasingly asking for products which reduce emissions, minimize waste, and enhance safety.
ESG is not a fad, it is here to stay. ESG is influencing investment decisions and will soon drive decisions in vendor selection for capital projects and retrofits. Industrials must realize that failure to offer products geared to ESG pose a significant risk as ESG is risk mitigation. As regulatory and consumer scrutiny increases it will become difficult to compete if the product offerings do not provide an environmental or safety benefit. Industrials must preparing for this inevitable change to reduce regulatory and legal intervention and give them an opportunity to compete long-term. ADI has helped companies shape product portfolios, unlock ESG value proposition of offerings, and identify acquisition targets focused on ESG practices. Please reach out to us if you’d like to learn more about ADI’s work in and around ESG issues.
-Brandon Johnson & Uday Turaga
