Commodities and natural resources drive roughly 10 per cent of global GDP. While the economic value of the natural resource industry is significant, perhaps even more significant is the impact on GDP arising from constraints on the availability of a critical commodity or resource.
Energy security concerns, rising and volatile energy prices, growing food challenges and water scarcity are creating new risks and opportunities that no business can afford to ignore. The business impact is far-reaching, including weaker financial performance due to resource and energy price increases and volatility; business disruption resulting from resource or energy insecurity; and resulting brand equity erosion, regulatory compliance costs and potential penalties.
Sustainability is another key aspect that has gained prominence when it comes to the use of energy or resources in general. It is now accepted widely that harvesting or using a resource such that the resource is not depleted or permanently damaged for future generations, should become an imperative behavior within corporations.
Companies in different market segments are at various stages of reckoning with these challenges. Those in resource- and energy-intensive industries like oil and gas, mining and transportation have been the first-movers; others have been slower to recognize their resource and energy risks. For consumer products companies and a range of manufacturers, the risks are often hidden, originating in second- or third-tier suppliers that historically have gone unmonitored. Banks and other service providers face less direct exposure but are however highly exposed in terms of second-order risks as their clients’ prospects can crash if energy prices spike or a key resource is suddenly in short supply.
One sector that is taking a proactive view of these risks is the global insurance industry as it begins to assess more seriously the various resource impacts that climate change might have on its underwriting exposures. Companies with a reduced and more resilient resource risk profile may be better positioned to avoid costly premium hikes.
For some companies, the case for elevating corporate resource management to the highest levels of executive management, through a C-suite position with the global perspective and remit to manage resource risk strategically, is self-evident. Indeed, with the shifting energy and resources landscape, we believe there is an emerging place for a Chief Resource and Energy Officer (CREO) in many organizations today.
The CREO’s agenda must encompass a diagnosis of current and anticipated resource and energy use and related risks; creation of improvement plan that optimizes resource and energy procurement and consumption, market by market; implementation to optimize shareholder value and savings; and continual and sustained measurement and culture change within the organization and the supply chain
Yet, among the more than 225 million members of LinkedIn, fewer than 60 list such as a title. A fundamental question that companies will ask is: is the CREO a new, stand-alone C-suite role or an additional one to be undertaken under the aegis of an existing position?
A complex role
A CREO’s role is to capture the shareholder value that can be gained through resource efficiency and resiliency. With access to resources becoming more difficult and hence costlier, resource efficiency is particularly key. Improved efficiency feeds into sustainability. The individual needs to advocate a proper capital allocation for resources and energy related projects and define appropriate IRR measures.
To that end, the CREO’s agenda must encompass a diagnosis of current and anticipated resource and energy use and related risks; creation of improvement plan that optimizes resource and energy procurement and consumption, market by market; implementation to optimize shareholder value and savings; and continual and sustained measurement and culture change within the organization and the supply chain.
Key to achieving this is developing relevant per-product resource consumption metrics and communicating them externally. This requires a detective’s doggedness to comb through the enterprise to learn where resources are consumed; a programmer’s discipline to capture and standardize complex resource data; a trader’s understanding of commodity dynamics; and the analytical skills of an engineer to assess the potential for improving the way a company sources and uses energy, water and other natural resources.
Add to that the challenge of dealing with multiple jurisdictions and tax regimes, addressing the different resource contexts of each facility, and understanding the most cost-effective and reliable local energy sources — the CREO’s role is complex.
Such responsibilities may at first be 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.
However, as companies grow, operational complexity often multiplies faster than do skills or the capacity to keep pace. Gaps in knowledge and responsibility can lead to fragmented understanding a company’s entire resource needs. For example, a COO charged with managing physical plant and vehicle fleets may be paying the power bills for a data center but lacking the know-how to alter the center’s design in the way the CIO might. A single high-level focus on these cross-functional issues by a CREO is thus needed.
It follows that the CREO is ideally a seasoned veteran who is well-versed in data-intensive analysis and able to delve into widely diverse operational areas — from raw materials in the supply chain to green building technology and data-center design. This person must also be able to architect the financial and risk management reporting through the supply chain which drives executive decisions.
Hence, 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 warrants a place in the C-suite.
The question for business leaders is no longer ‘should we prioritise these issues?’. Instead, they should be working to answer the questions ‘who will lead this effort and how?’ and ‘when do we start?’
K Sadashiv is the Asean leader for Climate Change and Sustainability Services and Sanjeev Gupta is the Asia-Pacific leader for Oil & Gas at EY.