February 18

How CCOs should respond to energy industry risk in the new normal


Today, the energy industry is undergoing a seismic shift due to growing concerns about climate change and changing consensus on how businesses should operate—energy companies are expected to take more responsibility for their energy use.

This is in stark contrast to previous years, where organisations only had to worry about ensuring their energy use was efficient. However, with ESG proliferating throughout the industry, they are now expected to be more conscientious in their energy use. 

This, however, is causing problems for CCOs because businesses expose themselves to energy industry risks. 

For instance, regulatory institutions are continuously updating energy laws, which puts the regulatory landscape in constant flux, making it difficult to keep up with the latest updates.

The concept of risk is also evolving rapidly as the market continues to undergo a rapid change in industrial operations. 

Finding ways to keep up with the latest developments and manage risks will be key in thriving in the new normal.

Contemporary risks facing the energy industry

  • Uncertainty around climate regulations

Today, the majority of the regulatory risks within the industry are related to the uncertainty surrounding the nature and timing of energy regulation, hindering organisations’ ability to comply with these regulations.

Regulations in the sphere of climate change tend to be ambitious. For example, cap-and-trade policies and carbon tax systems could introduce changes to how business operations are carried out. But, due to the convoluted nature of these regulations, most organisations are not clear on how these regulations apply to their business.

Furthermore, there tends to be uncertainty about the internal procedures and controls energy companies need to comply with emission verification and reporting requirements. This is a huge risk as organisations could be missing out on grants and other supportive measures that could help them navigate climate change. 

For example, the International Accounting Standards Board (IASB) and Financial Accounting Standards Board (FASB) have connected accounting guidance to carbon emission rights, government grants and trading. 

  • The rapid rate of technological adoption

The energy industry is undergoing a rapid period of digitalisation, with technological developments within the industry ranging from adopting automated technology to accelerating outcomes. 

However, this rapid rate of technology adoption comes with its concerns, particularly when it comes to securing data and digital operations. 

Furthermore, with digital technology playing a bigger role, organisations will have to reassess the type of talent they need to hire. This will make energy regulation more complex for organisations because they will have to account for operations that are traditionally not within the realms of energy regulation

How should CCOs respond? 

  • Modernise regulatory management with the right technology

Given the challenges facing energy companies, CCOs must reconsider their compliance management processes.

Hence, modernising regulatory management using advanced automation technology like topic modelling, AI, and NLP will turn compliance into a more flexible and responsive process that is better suited to tackle the changing industry standards. 

Turning regulatory management into an agile process places organisations in a better position to anticipate regulatory updates and integrate them into internal operations.

  • Build resilience into business operations

With increasing uncertainty surrounding current energy laws, businesses need to pivot towards long-term thinking and planning. 

This means that businesses will need to build resilience into operations by anticipating different scenarios and creating contingencies to mitigate damage from any unexpected events. 

Here, risk intelligence solutions can help with scenario planning, making it easier for compliance teams to prepare for future changes. This will enable energy companies to navigate a changing industry without compromising performance. 

  • Shift to a dynamic risk assessment process

A traditional risk assessment approach is static and not suited for the evolving energy industry. 

However, a dynamic risk assessment process evolves traditional assessment methods by incorporating future trends and injecting a forward-looking analysis. Instead of relying solely on historical data, this method expands data sources to account for risks that are difficult to anticipate. 

Adopting this method gives energy companies the leverage they need to account for unexpected events or regulatory updates, providing much-needed flexibility in managing unexpected energy industry risks. 

Thriving in the new normal 

As the energy industry continues to evolve, modernising risk management is critical for mitigating energy risks within the new normal.

This can separate energy companies that adapt to the new normal from ones that struggle to keep pace with the dizzying rate of regulatory updates and propel them towards market domination.


Dealing with Risks, Energy Industry Risk

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