How the pursuit of a better ESG rating has moved ENN Energy forward

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ENN Energy positions itself as a clean energy service provider that offers low carbon solutions for industrial, commercial and residential customers in China, a country in rapid energy transition from a high carbon energy structure.

Currently, we offer integrated energy solutions to help customers replace high-emission fuels with low-carbon natural gas as well as renewable energy, helping customers reduce emissions while improving their competitiveness throughout the along the country’s decarbonization journey.

Additionally, we are aware of our own impact on the environment and society during operations. A 10-year decarbonization roadmap has been developed and a goal of net zero emissions by 2050 has been set, demonstrating our ambition to play a leading role in the country’s decarbonization process.

ENN Energy HoldingsIn 2021, we helped our customers reduce their carbon footprint by 49 mn tonnes. The carbon intensity of our operations for the year was 8,060 tec./billion dollars3which represents a reduction of 17.3% compared to the base year 2019, even as we have expanded the scale of our activities.

Last October, ENN Energy’s ESG rating was upgraded to “A” by MSCI, the highest ESG rating achieved in Asian gas distribution companies. Recognition of our efforts sends a clear signal that we are on the right track. As we aim for a higher MSCI ESG rating over the next few years, our journey provides an instructive example for other major companies operating in mainland China.

How we started our journey

In 2016, driven in part by the Hong Kong Stock Exchange’s (HKEx) decision to revise ESG reporting rules following a consultation process, listed companies were mandated to publish an ESG report. As is now known, it was recommended to “comply or explain” on the disclosures.

Meanwhile, US-domiciled shareholders contacted us and inquired about our MSCI ESG “CCC” rating, which admittedly resulted from a lack of engagement with the ESG rating agency, insufficient disclosure ESG data and insufficient awareness. As shareholders face the prospect of selling positions in companies with poor ESG ratings, we have started our journey in earnest.

To get to this stage, our IR and sustainability team worked continuously with senior management as well as business units and functional departments to ensure that ESG was integrated into the company’s business strategy and day-to-day operations. company, and that relevant ESG data was properly disclosed.

In our experience, while there are many different agencies providing ESG assessment, each with their own metrics, methodology and scoring mechanisms, it would be best to incorporate those that are most relevant to their business and are sought after by investors – for example, MSCI, CSA from S&P Global, CDP and Sustainalytics.

Enterprise-wide multi-stakeholder efforts on all possible fronts

I think most IROs will agree with me that building ESG awareness internally is the biggest challenge.

Not only must senior management be convinced of the importance of achieving a high level of performance and collecting data that goes beyond financial and operational matters, but employees at all levels of the company must also have this awareness to facilitate the implementation of ESG Best Practices in day-to-day operations.

This is no small task in a large company with hundreds of project companies operating in China. To achieve this, we have taken a top-down approach.

By incorporating investor feedback on the company’s ESG performance, the latest update on global ESG development and ESG disclosure requirements into our bi-weekly RI reports, we have gradually brought this topic to management’s attention. .

A gap analysis comparing us to our international peers in terms of ESG performance was also conducted, which identified areas that needed further improvement to catch up with international standards, as well as achieve better ESG scores.

More importantly, we advised the board to form an ESG committee to drive the formulation of the sustainability strategy and set up an ESG working group to coordinate and execute the relevant strategy.

A link between the ESG key performance indicators and the compensation of senior management and key managers has also been established; these are assessed annually on the achievement of designated ESG matrices.

We have also introduced clawback mechanisms to ensure a consistently high level of ESG performance over a period of time, particularly in the areas of operational safety and environmental impact.

Then we worked on educating other employees. We launched a series of educational programs, including short video clips that were broadcast on the intranet (viewers were given content quizzes and those with high scores were announced on internal platforms). We organized thematic workshops at headquarters and webinars for employees across the country to strengthen their knowledge.

To boost their ESG awareness, we even shared news about our improved ESG ratings and awards received through internal platforms and social media to resonate with all employees.

Our efforts have paid off as we now have experienced in-house teams that coordinate the regular collection of ESG data, implement ESG improvement tasks and contribute innovative ideas in areas such as biodiversity protection, control of methane emissions, gender equality, etc. sustainable business development.

ENN Energy HoldingsThe next step – integration into the development strategy

Last year was marked by extreme weather events. Intense heat waves, storms and wildfires have swept the world, while there have been horrific floods in China’s Henan province. There are far too many regular reminders of the impact of climate change.

As a leading provider of energy solutions, we have started to gradually integrate the TCFD framework into our ESG reporting to respond to the challenges of climate change. We also completed CDP’s climate change questionnaire last year, earning a ‘B’ grade for the first time. Going forward, we will strive to expand the scope of ESG ratings and data providers to which we respond.

Now that everyone in the business realizes the goals of such disclosure – that it’s not just about meeting investor demand – we have a stronger incentive to embed a diverse set of ESG standards and frameworks into the company’s global development strategy, which pushes the boundaries on ESG best practices.

In October 2021, we published the first phase of our decarbonization roadmap, Decarbonization Action 2030, clearly setting out the steps we intend to take as a company to decarbonize and promote the low-carbon transition to customers and society by the end of the decade. Although efforts continue, I am delighted to see greater integration between ESG and business development. For example, we deployed cutting-edge technology to measure and manage methane emissions during day-to-day operations, while urging our industry peers to step up their methane control efforts.

Many plans have been put in place with clear objectives, but we know that there is still much to do.

Our two cents to the IRO

As of January 2022, over 40% of our shareholders were signatories to the United Nations Principles for Responsible Investment, a proportion we plan to increase.

It is clear that RI teams have a role to play in ensuring that ESG objectives are smoothly integrated into business operations and strategy, and can help bridge the gap between their business and stipulated best practices. by various ESG rating systems. ESG rating agencies have recently rightly drawn criticism that they only measure the potential impact of the world on the company and its shareholders instead of the company’s impact on the environment and society. .

But our experience also shows that such approaches can be an important and proven approach that can help companies move in the right direction, having a tangible impact on both the environment and society.

Editing by Suhas Bhat, Editor at Hill+Knowlton Strategies (Hong Kong)

This content is provided by ENN Energy Holdings and does not imply IR magazine journalists. For more information on ENN Energy Holdings, please click here.

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