EY - Energy mix optimization can create value

Importance of a Chief Resources and Energy Officer

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There is a compelling case for elevating corporate resource management to the highest levels of executive management through a chief resource and energy officer (CREO) position.

Commodities and natural resources drive roughly 10% of global GDP and underpin the performance of most industries. While this figure for the economic value of the natural resource industry is significant, perhaps even more significant would be the impact on GDP from constraint on the availability of a critical commodity or resource.

CREOs can focus on these risks and opportunities

Energy security concerns, rising and volatile energy prices, growing food challenges and water scarcity are creating new risks and new opportunities that no business can afford to ignore.

These risks fall into four main categories:

  • Weaker financial performance due to resource and energy price increases and volatility
  • Business disruption resulting from resource or energy insecurity
  • Brand equity erosion because stakeholder expectations related to resource and energy use have not been met
  • Regulatory compliance costs and potential penalties

The chart below highlights the risks and opportunities the CREO can focus on.

EY - chart – resource and energy risks and opportunities

A CREO’s role is to capture the shareholder value that can be gained through resource efficiency and resiliency. The role of the CREO is also to advocate a proper capital allocation for resources and energy related projects and define appropriate IRR measures.

CREO responsibilities may be at first assumed by one or more existing senior management positions — the chief operations officer, chief financial officer, chief sustainability officer or a senior supply chain executive — with the appropriate expansion of competencies and responsibilities.

Although the CREO may not be a new stand-alone position in the C-suite in the immediate term, while real-world experience with the position is gained, it is an additional role that must be assumed by one or more of the existing C-level executives.

Four focus points for CREO role

The CREO role focuses on the following resource agenda:

  1. Diagnose: This should include current and anticipated resource and energy use and related risks.
  2. Design: Create an improvement agenda, optimizing resource and energy procurement and consumption, market by market.
  3. Implement: Optimize the company’s capital stock and increase shareholder value by understanding the specific improvement opportunities and implementing savings where possible.
  4. Sustain: The benefits of resource and energy optimization requires continuous measurement and improvement. It also requires culture change within the organization and the supply chain.

Models for the CREO role

Our research shows that a variety of CREO models are emerging, varying by industry and corporate structure, with the common aim of empowering cross-functional resource management. In addition to an eventual stand-alone position, immediate models for the CREO role include more empowered versions of the existing C-Suite positions:

  • Chief sustainability officer. If the CSO has the authority beyond moral influence to make operational decisions, this individual can be highly effective in assuming the additional role of CREO.
  • Chief operations officer. The COO already heads operations and thus is a natural fit to oversee energy and resource consumption. But this responsibility requires a broader view of resource risk and an understanding of resource reporting requirements.
  • Chief financial officer. The CFO brings a focus on risk management and an existing competency in reporting that can be extended to the internal and external reporting frameworks for managing resources.
  • Chief information officer. The CIO’s concern with productivity and data management lends itself to the enterprise-wide resource data collection and analysis that is essential to the CREO role.
  • Executive management board. The alternative to giving the CREO role to a single individual is to create an executive management board to develop resource and energy strategy, taking a cross functional approach and backed by the authority of the CEO.

The key commonality among these models is that the CREO has the authority to implement change across the enterprise.

For more information, download the report “Do you need a chief resource and energy officer? The case for elevating the management of energy, water and other critical natural resources to the C-suite.”