ESG has become an almost unavoidable topic when discussing strategy, investment, and risk. In the power sector, however, its application raises questions that go beyond discourse and move directly into the realm of analysis.

Companies operating different technologies, whether renewable, thermal, or mixed portfolios, are often evaluated using similar sets of metrics. The question that naturally arises is whether these criteria are capable of capturing relevant differences in business models or whether they end up treating distinct realities as equivalent.

This text starts precisely from that point. Not from denying the importance of ESG, but from the need to discuss how it is applied in the power sector and what implications this may have for financial and strategic decisions.

My main concern lies in the difficulty of applying ESG metrics in a fair and comparable way within the power sector, especially when companies combine renewable and thermal assets in their portfolios. The attempt to frame such distinct realities under the same set of indicators often generates asymmetric expectations, simplified moral perceptions, and imprecise financial assessments.

My choice of the power sector as a starting point is not random. It reflects both my professional experience in a capital intensive and highly regulated sector and my personal interest in sustainability related issues. Throughout my career, these two dimensions, finance and the responsible use of natural resources, have increasingly intersected. It is from this combination of practical experience and economic training that I approach ESG in this article, less as an abstract concept and more as an applied analytical tool.

Metrics, materiality, and the problem of comparison

Although there is a growing number of ESG metrics and frameworks, the central challenge in the power sector is not the lack of indicators, but the difficulty of applying them in a materially fair and comparable way across different business models.

ESG metrics are necessary. They help guide decisions, establish targets, and make risks more visible. The problem does not lie in the existence of these metrics, but in the implicit assumption that they are neutral and equally applicable to all operational models.

Two examples illustrate this issue well in the power sector. Water consumption and CO2 emissions intensity are often treated as central indicators of environmental performance. In purely renewable companies, water consumption tends to be structurally low. In thermal power plants, it may be high, depending on the cooling technology used. Likewise, carbon intensity is virtually zero in renewable sources, while it is part of the operational logic of thermal plants.

In these cases, the metric stops measuring relative efficiency and starts reflecting the very nature of the asset. Comparing companies based on these indicators, without considering technology and portfolio composition, does not produce a fairer analysis. It merely shifts judgment to the business model itself.

This does not mean that metrics such as CO2 intensity are irrelevant. On the contrary, they are indispensable indicators. Their use, however, requires context. ESG metrics work best when they respect materiality, technology, and long term strategy, rather than when they are treated as universal scores.

Renewables: structural advantage or expanded scrutiny

Renewable energy companies often start with a form of moral credit when it comes to ESG. This credit is not merely symbolic or communicational. It translates into better ratings, greater institutional visibility, and favorable market positioning. It is not uncommon for renewable companies to rank in top tier classifications, which facilitates access to capital and attracts ESG sensitive investors.

This same positioning, however, creates a burden. Once recognized as green, a company begins to operate under heightened scrutiny. Maintaining this reputation requires consistency, transparency, and the ability to respond quickly to any deviation, whether real or perceived.

In mixed portfolios, this tension tends to be even greater. The presence of thermal assets often generates recurring questions, regardless of their relevance for energy security or system stability. In some cases, there is an implicit expectation that such assets should be phased out or rapidly transitioned, even when technical and regional realities impose clear limits.

In this context, ESG stops evaluating only what the company does and starts reflecting what the market expects it to do.

Why companies truly care

In the power sector, concern with ESG goes far beyond public discourse. There is a concrete demand for energy transition, and ESG often functions as an instrument to guide strategic priorities. Meeting ESG criteria can facilitate regulatory dialogue, contribute to operational improvements, and reinforce the company’s social legitimacy to operate.

There is also a relevant reputational component. Companies that depend directly on natural resources must demonstrate their ability to use them responsibly, reducing impacts and contributing to the sustainability of the environment in which they operate. This is not only an ethical issue, but a practical condition for the long term continuity of the business.

At a certain point, ESG stops being a good practice and starts approaching a requirement. This occurs when it enters the regulatory radar, conditions access to financing, or becomes explicitly integrated into market positioning strategies.

In most cases, intentions are legitimate. The challenge tends to lie less in conviction and more in translating these goals into internal culture. When ESG is communicated merely as an obligation, it risks being perceived as empty narrative. When properly explained and contextualized, it tends to generate more consistent engagement.

Investors, capital, and value perception

It is undeniable that investors are paying attention to ESG. Well positioned companies tend to present higher ratings, which influence risk perception, access to capital, and institutional positioning. Even so, there is a significant educational effort still to be made. Not all stakeholders clearly understand how this type of investment translates into financial returns over time.

Companies are complex ecosystems. For ESG to function as an effective tool, alignment is required between strategy, operations, market, and investors. When this alignment occurs, benefits go beyond reputation and begin to be reflected in greater efficiency, resilience, and competitiveness.

A personal and economic closing

From a financial perspective, I hope ESG is treated by companies as what it can most usefully offer: a tool for good management. Not merely as a response to external demands, but as a strategic management instrument. This involves incorporating ESG into a broader conception of value creation, one that goes beyond immediate shareholder returns and encompasses the organization’s ability to operate efficiently, responsibly, and sustainably over the long term.

My personal reading of ESG follows this logic. Working with natural resources makes it clear that they are not infinite. The way they are managed impacts not only financial results, but also the communities and environments that sustain the operation itself. Respecting these limits is not incompatible with a capitalist model. On the contrary, it is what makes this model viable in the long term.

It is in this balance between economic efficiency, sound resource management, and operational responsibility that I see the most interesting potential of ESG. Not as a ready made answer, but as a starting point for better decisions in complex and capital intensive sectors, such as the power sector.