The Energy Transition: an investment opportunity for companies oriented towards ESG sustainability.

The full-blown climate changes, the still indispensable use of fossil fuels, such as:

> Oil;

> Natural gases.

They have transformed the priorities of investment-related risks.

ESG (Environment, Social & Governance) sustainability factors have now become an essential factor for every manufacturing and non-manufacturing company.

In recent years, the governments of countries around the world have signed unprecedented global agreements, which will be able to radically change investment policies, pushing the transformation towards a sustainable and environmentally compatible economy, promoting and supporting a "global energy transition", through economic support of various types, in the various industrial sectors.

The European Union, in addition to launching an important Multi-Year Financial Plan in support of the "green deal", has taken the field considerably and has decided to accelerate the energy transition processes, bringing forward important targets to 2035.

Financial markets are also moving in this direction, establishing real regulatory authorities, linking climate risk into the global financial system.

 

 

As? By changing the ratings of financial companies, should they not declare a "green" sustainability and investment policy.

Finally, in this historical and economic period, "sustainability" fortunately goes hand in hand with "ethics", pushing many companies to undertake management and therefore investment paths, focusing on ESG factors, coupled with corporate ETHICAL VALUES and governance.

It is therefore not a question of promoting cheap "green washing" actions; on the contrary, companies are betting heavily on the opportunity for deeper and more rooted growth, a cultural evolution capable of generating true corporate values, which are necessarily reflected both in management and in short/medium and long-term investments.

 

How does this epochal cultural change in governance happen within a company, focusing on ESG factors?

Many companies, especially public ones and those listed on stock exchanges around the world, have extended ESG policies to social and ethical policies, certifying and publishing short/medium and long-term ESG strategies and defining the targets to be achieved therein.

At the same time, together with the half-yearly reporting on company performance, they have the obligation to publish a specific reporting file on the development of ESG factors.

Generally, large companies lead the way in the markets and therefore this trend must necessarily be read from a "button down" perspective.

It is no coincidence that many small companies have certified themselves and have already published their first sustainability reports, declaring their short/medium and long-term investments.

We are mostly talking about highly energy-intensive manufacturing companies that have implemented their range of products with the use and/or addition of "bio-materials", but also production companies that by strategic choice have opted for a policy of investments aimed at increasing energy efficiency and improving the working environment, adapting production sites and building envelopes, such as: installing systems that generate electricity from renewable sources, general revamping of consumer equipment, changing fixtures, coats thermal, boiler replacement with heat pumps, disposal of asbestos cement and other preparatory activities.

 

But let's go into specifics, what are ESG certifications?

They are a series of operational standards that a company's strategies must comply with.

These certifications evaluate the sustainability of organizations, in particular their ability to align with a series of fundamental requirements for sustainable development from the economic, environmental, social and governance points of view of the company.

 

 

Sustainability has three dimensions.

ESG is an acronym (Environmental, Social & Governance).

> Environmental Area (E), includes environmental factors, i.e. the way in which an organization contributes to the protection and management of the environment.

> Social (S) scope includes services, i.e. the impact in which an organization interacts with the territory and with people, be they employees, suppliers and customers.

> Governance Area (G), includes strategies, i.e. the way in which an organization intends to apply the first two factors within the company.

 

How to obtain ESG certification?

ESG sustainability is becoming a central theme in the corporate world at all levels and dimensions.

Companies that demonstrate a strong commitment to these principles can obtain ESG certification, which is a certificate that certifies and qualifies them for their commitment to sustainability.

Before undertaking the ESG certification process, it is crucial to have a thorough understanding of ESG criteria and key existing standards, such as the Global Reporting Initiative (GRI), the United Nations Global Compact (UNGC) and the Sustainability Accounting Standards Board (SASB). ).

These standards provide guidance on key areas of sustainability and how to measure corporate performance in those areas.

Once you understand ESG criteria, it is important to “conduct an internal assessment” to understand the current state of the company's ESG performance.

 

How? Analyzing financial data, identifying environmental and social risks and planning improvement strategies.

“Strategies play a key role in the certification process”: the strategic definition is necessary to establish the objectives and the investments to be made to achieve them.

Once the strategy has been defined, it is necessary to implement the measures for monitoring the results over time.

This may involve collecting specific data and integrating sustainable processes and procedures within daily business activities.

 

ESG certification

After conducting the internal assessment and measuring the company's ESG performance, the certification process can be started.

There are several organizations offering ESG certification, each with their own requirements and evaluation criteria.

It is important to select a recognized and trusted certification that aligns with industry standards and expectations.

Once ESG certification has been obtained, there is an obligation to communicate the results transparently to the outside world, for example to shareholders, employees, suppliers and customers.

This can be done through the publication of periodic sustainability reports.

By following the steps described above and demonstrating a solid commitment to sustainability and ESG factors, companies can not only contribute to a more sustainable future, but also achieve tangible business benefits recognized by the market.

 

 

ESG Auditors and Certifiers?

ESG certifications are issued by various independent organizations specialized in the sector.

Some of the most internationally recognized are:

> Global Reporting Initiative (GRI)

The GRI is a non-profit organization that promotes the dissemination of information on the environmental, social and governance impact of companies. The GRI provides guidelines and standards for preparing sustainability reports and does not issue certifications, but it helps companies develop and improve their ESG performance.

> Carbon Disclosure Project (CDP)

The CDP is an international organization that requires companies to disclose their greenhouse gas emissions and strategies for dealing with climate change.
Companies participating in the CDP receive a transparency and climate action score, but not a specific certification.

> Rating agencies.

Some independent rating agencies, such as Moody's, S&P Global and MSCI, also evaluate companies' ESG performance.
These agencies use specific metrics to score or rate companies based on their ESG engagement and performance.

 

Costs of ESG certification?

The costs for obtaining an ESG certification can vary according to the organization issuing it and above all according to the company size.

Logically, the greater the commitment to sustainability, the higher the costs will be.

It is advisable to contact your chosen ESG certification organization directly to obtain accurate cost information.

 

Long-term benefits and vision.

The corporate world rationally tends to compare COSTS vs BENEFITS.

What benefits could a company have that opts to invest in sustainability by certifying ESG factors?

From our point of view we could consider three types of benefits and economic returns:

> The first is a SHORT-TERM BENEFIT, commercial recognition of customers on individual products. The ESG certified customer recognizes the ESG supplier an extra plus (either economic or in terms of product volumes) compared to the non-ESG certified supplier;

> The second is a MEDIUM/LONG-TERM BENEFIT, economic return on sustainable investments, in terms of economic savings over time.
These investments have an average payback time of 4/5 years and will allow companies to see the first tangible benefits only after this period of time.

> The third is a LONG-TERM BENEFIT, based on the classic hierarchy of the supply chain in the corporate world (Producer OEM, Tier1 supplier and Tier2 supplier), in the long run there will be an increasing tendency to qualify only ESG certified suppliers.
ESG certification is a process that is starting now, and which in fact is mainly involving (OEM producers) and some first-level suppliers (Tier1).
Therefore this selectivity mechanism must necessarily be seen in the long term.

The companies that decide today to invest by certifying ESG factors are mainly those players who have a long-term vision, who do so because they create tangible value for the entire company system and not for an immediate improvement of their economic account.

 

 

The Inveco Group's interest in ESG factors

In recent years, our renewable energy business unit has grown significantly, both in organizational terms and in terms of business volume.

This success was certainly made possible thanks to our experience as a general contractor in the industrial world and careful planning and commercial strategy.

Above all this, however, there was the presence of a strong MARKET DEMAND.

It is precisely the specific analysis of the question that presents us with a more appropriate and in-depth reflection: "the demand encountered in recent years to make industrial building envelopes more efficient, the strong development of renewable energy, primarily the installation of rooftop photovoltaic systems, have they already reached the end of the line”?

“Will the investments of industrial players continue at the current volumes or will they have contractions in the coming months that will send companies like ours into crisis?” – “Has the fear effect of a company that saw the cost of kWh skyrocket in 2022, then return to pre-shock levels, more or less market-level, already over?”

The answer to these simple and obvious questions that many entrepreneurs are certainly asking themselves today is, in our humble opinion: NO.

The ESG certifications are proof of this, because if the corporate world, strongly stimulated by international institutions, has taken this route and undertaken strategic decisions based on instrumental investments, the answer can only be a firm "NO".

It is here that we glimpse our growth opportunity, first of all a "cultural growth" that can conceive and understand the true strengths behind sustainability, factors that are apparently intangible but which create value in the company.

Again from our modest point of view, ESG certifications are an example of how the corporate world is evolving and will not do so in 30 years, it is already doing so and will continue to do so.

 

(plant built in March 2023 for ICSS Group, an ESG certified company)

 

The Inveco Group's commitment will be to implement ISO 9001 with ISO 14000 by 2024, at the same time conducting "an internal assessment" to understand the current state of the company's ESG performance and begin strategically planning business objectives. 'investment.

The Inveco Group is sensitive to issues related to sustainability and sees long-term opportunities in the energy transition supported by corporate cultural growth.