Navigating Energy Transition: A Strategy for Creating Enduring Value & Returns

The global energy system is undergoing a momentous transition as the world moves to combat climate change and build a more sustainable future. This transition brings significant uncertainty but also a tremendous opportunity for materials and energy companies. To thrive amidst volatility, these companies must adopt robust strategies that create enduring value.

The path forward lies in 3 key actions:

Identifying the most promising opportunities

Companies should take a granular look at where they can generate advantages, considering risks to existing businesses, decarbonisation potential, sustainability premiums, and new green growth options. A detailed understanding of customer sustainability needs and factors impacting supply availability and economics is essential to assessing the value at stake. Investors are rewarding companies tapping high-growth sustainability segments; for instance, enterprises exposed to electrification, renewable energy, bio-materials and nuclear power have seen valuation premiums of 10-50%.

Smartly entering new markets

Companies must factor uncertainty into strategic choices, categorising opportunities as:

1) No-regret moves with clear near-term payoffs,

2) Shaping moves requiring investments to control future value streams, and

3) Scenario-dependent future moves. Investors want evidence of scaling, with over 10% of revenues in green businesses indicating strategic commitment. Strategic partnerships can de-risk new markets like hydrogen by sharing risks and coordinating ecosystem development.

Monitoring signposts to time-critical moves

Companies should identify signposts that signal when to enter, scale or exit opportunities. For example, triggers for investing in gasification biofuels could include plants coming online, policy mandates, and customer commitments. With long timeframes, “act and adjust” is often superior to “wait and see”.

For energy and materials companies, the energy transition brings risk but also prospects to build enduring advantages and value. With robust, dynamic strategies rooted in granular opportunity assessment, smart sequencing and ecosystem coordination, companies can confidently navigate uncertainty and thrive in the markets of the future.

Three key takeaways for investors

• Growth: Look for companies that identify their most promising sustainability opportunities through a granular analysis of risks, customer needs, competitive advantages and growth potential. This can reveal valuable segments for investment.
• Risk Mitigation: Strategic choices should balance uncertainty, timeline and investment requirements. JV's and strategic partners can de-risk projects. Scaling sustainability revenues signals commitment.
• Thematics: Monitoring signposts related to policy, technology adoption and customer demand can indicate optimal timing for major moves. With long timeframes, decisive action is often superior to delay.