Do you need a “chief resources and energy officer”?

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The case for elevating energy, water and other critical natural resources management to the C-suite

Commodities and natural resources drive roughly 10% of global GDP and underpin the performance of nearly every industry. The world’s resources are finite, and becoming less accessible and more expensive.

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

We believe this makes a compelling case for elevating corporate resource management to the highest executive management level by creating a C-suite position with the global perspective and remit to manage resource risk. Call it a chief resources and energy officer (CREO).

 

Why a CREO: growing risks and value-creation opportunities

Corporations face increasingly acute resource and energy risks:

  • Weaker financial performance from commodity price exposure
  • Business disruption
  • Brand equity erosion
  • Regulatory compliance.

How best to orient a company’s executive leadership to minimise these risks, and exploit related opportunities, is complex. Managing resources and energy on a global scale — dealing with often complex regulatory and tax regimes in multiple jurisdictions, addressing each facility’s resource issues, understanding the most cost-effective and reliable local energy sources — is not simple.

The strongest argument for an executive dedicated to these issues goes beyond simply avoiding risks, to the challenge of transforming them into opportunities.

 

Resource and energy risks

Value-creation opportunity

Weaker financial performance  
  • Increased financial costs, lost sales due to rising input prices and resource shortages
  • Reduced long-term costs from fixing against current prices and improved planning ability
  • Impact on second-order derivatives, such as logistics, capital equipment and supply chain costs
  • Advantage over less resource-efficient competitors during shortages or price spikes
Business disruption  
  • Lack of resource and energy security
  • Enhanced energy security through energy mix optimisation and on-site or adjacent-site solutions
  • Supplies of raw materials and energy constrained for political, market or natural disaster reasons
  • Uninterrupted operations, enabling uninterrupted sales
Brand equity erosion  
  • Failure to meet stakeholder expectations related to energy and resource use
  • Brand equity enhanced by resilient operations and strong sustainability initiatives
  • Failure to meet customers’ business continuity or sustainability expectations
  • New business opportunities from companies that prioritise the same issues and mandate sustainable suppliers
Regulatory compliance costs and potential penalties  
  • Regulatory exposure from CO2 emissions, waste streams and water use
  • Potentially lower carbon allowance costs and reduced landfill/sewage charges from emissions reduction initiatives
  • License to operate at risk
  • Improved efficiency resulting from measuring, managing and reporting on key resource performance indicators

 

CREO: a new position or just a new role?

So: do companies need a new C-level executive with sole focus on strategy and operations related to energy, water and other critical resources? In most cases, the answer is likely no, at least in the near term. But even then the role must be assumed by one or more of the existing C-suite executives.

 

Defining the CREO role

Companies often prioritise revenue growth over operational savings, and upgrades to energy and resource efficiency are often passed over, despite delivering virtually guaranteed, recurring returns.

Cultivating an effective CREO requires support from a CEO and board of directors advocating the long-term benefits of resource efficiency, and willing to give equal weight to cost saving and revenue growth.

It follows that this role is best filled by someone fluent in data-intensive analysis and able to delve into widely varying operational areas — from raw materials in the supply chain, to green building technology and data center design.

Based on our work with large companies, the CREO’s agenda can be largely framed as follows:

Diagnose

A CREO must diagnose the company’s current and anticipated resource and energy use and related risks, engaging with business units, suppliers, customers and stakeholders, and benchmarking against peers.

Design

A CREO’s challenge is to optimise resource and energy procurement and consumption market-by-market, mapping alternatives and designing improvement initiatives.

Implement

The CREO’s team must look at equipment, real estate and energy services agreements and identify improvement opportunities and implement savings where possible.

Sustain

Sustaining the benefits of resource and energy optimisation requires continuous measurement and improvement, and cultural change in an organisation and its supply chain. Getting colleagues and partners to adopt these goals may prove the greatest challenge.

 

Here a CREO is helped by the fact that many of these changes reduce costs and benefit the bottom line, and corporate sustainability programmes show people have a strong emotional connection to environmental improvement efforts. While CREO initiatives can be complex to roll out, organisational support is often high.

 

Developing the CREO role

The CREO role requires a diverse — and currently rare — set of skills. The qualifications for the role will vary, but it is safe to say a successful CREO needs to be:

  • Data savvy
  • Knowledgeable about energy resource markets and options
  • Aware of the different resource contexts in which the company operates globally
  • Experienced in corporate project development
  • Adept at innovating new corporate processes and approaches
  • Familiar with emerging resource and energy technologies
  • A big thinker who can not only find savings but also new opportunities

The coming years are likely to see the role formalised as it becomes more widely recognised as boosting competitiveness and grounded in a particular skill set. For the near term the CREO is most likely to come from within because of the specialised company knowledge needed.

Now is the time, therefore, for boards and C-level leaders to become more sophisticated in their understanding of a CREO’s potential contribution.

 

Resource and energy imperative

Most companies face rising risks from less predictable, costlier and scarcer resource and energy supplies. Depending on the sector, they are responding with varying degrees of in-house expertise. Yet in all cases, an evaluation of the need for, and role of, a CREO will prove revelatory, regardless of the outcome.

After all, if a company pays close attention to energy and resource issues, it’s good for the bottom line. It’s not either efficiency or profits, it’s both.

Given rising resource and energy risks, business leaders should no longer be wondering whether they ought to prioritise these issues. Rather, they should begin to answer the questions, Who will lead this effort? How will they lead it? and When do we start?
 

 

The full version of EY's white paper, Do you need a Chief resources and energy officer? will be available on ey.com/cleantech from 1 September 2013.