Risk Management Best Practices for Energy & Utilities: Proactive Strategies for a Changing Industry

The energy and utilities sector is like a vast, interconnected power grid. Every element of an organization’s risk management program should align to ensure resilience and efficiency, just as every power line, transformer, and substation must work together to keep the lights on. But just as one storm or malware can cause a grid to be disrupted, a disjointed or segmented risk management approach can leave organizations vulnerable to spreading threats.

As the world changes around them, energy and utility organizations face new and more challenging threats. These include risks linked to climate change, regulations, the constant threat of cyberattacks, and now, the growing energy demands of artificial intelligence (AI) systems. Risk leaders need to be strategic and connected to thrive. They need to make certain that enterprise, operational, and IT risks all work together to support long-term growth.

In this article, I’ll break down the particular challenges confronting energy and utility companies today and share best practices and practical actions to consider to boost collaboration, leverage technology, and support resilience. 

Understanding the Unique Risk Landscape in Energy & Utilities

The energy and utilities industry operates in a dynamic ecosystem where risks are closely linked. Recognizing the key challenges confronting the sector can help one create a successful risk management program.

Key Risks Facing the Industry in 2025

1. Cybersecurity Threats: As critical infrastructure becomes more interconnected, cyberattacks targeting operational technology (OT) systems present a growing threat—cyberattacks on US utilities surged by 70% in the past year. High-profile events like ransomware attacks on pipelines and power grids draw attention to the need for robust security policies safeguarding OT in addition to IT systems.
2. Environmental and Climate Risks: Extreme weather events, rising temperatures, and regulatory pressures for decarbonization pose significant operational and financial risks. For organizations to achieve their sustainability objectives and strengthen their resilience, climate risk assessments must be part of the planning process. By 2050, the utility sector is projected to bear the financial burden of climate change, with costs approaching $244 billion per year.
3. Operational Inefficiencies: Outdated manual systems, siloed divisions, and fragmented procedures all make it harder to respond dynamically to risks. Real-time monitoring of operational weaknesses makes the problem even worse. Electric and gas utilities spent US$171 billion in capital expenditures in 2023 to modernize and decarbonize the grid based on Deloitte’s 2024 power and utilities market outlook.
4. Regulatory Complexity: Regulatory Complexity: Energy and utility organizations must navigate several regulatory hurdles, from NERC (North American Electric Reliability Corporation) and FERC (Federal Energy Regulatory Commission) standards to ESG reporting obligations. Non-compliance risks range from operational interruptions to monetary penalties to reputational damage. Increasing regulatory changes and scrutiny is now the second highest risk, behind cybersecurity, according to Protiviti’s March 2024 poll of energy and utilities executives.

Lessons from Recent Industry Incidents

In 2021, the Colonial Pipeline ransomware attack led to widespread fuel shortages and economic disruptions across the U.S. This event made clear how a single cyber weakness can contribute to a national crisis. It underlined the need for safeguarding IT and OT systems in addition to using a connected risk management approach to prevent and mitigate these risks.

• Cybersecurity isn’t just an IT issue—it’s an operational risk. Organizations need to align their operational risk management plans with their cyber ones to address vulnerabilities across their operations.
• Proactive planning, including robust incident response protocols and penetration testing, is essential to minimize the impact of cyberattacks.

More recently, devastating wildfires tore through Los Angeles, with Palos Verdes and Altadena among the hardest-hit areas. Widespread power outages and the water demands of firefighting operations resulted from the fires overwhelming regional power networks and water supply, exposing vulnerabilities in infrastructure that is ill-equipped to manage wildfire risk. According to S&P Global, “rapidly expanding wildfires in the Los Angeles area might pose significant financial and operational risks for rated entities, especially if not-for-profit electric utilities’ infrastructure triggered the fires.” 

• Climate resilience must be a cornerstone of risk management. Scenario planning and stress tests are essential to identify vulnerabilities in energy and water infrastructure and develop strategies to mitigate cascading risks.
• Cooperation among utility providers, emergency response teams, and regulatory bodies is essential for achieving synchronized responses to climate-induced disasters and ensuring the reliability of power and water services.

Looking ahead, artificial intelligence (AI) is causing energy consumption to climb at an exponential rate. By 2030, data centers are expected to use more than 9% of the world’s power. This rise in energy use leaves grid reliability at risk while raising sustainability concerns for the energy and utilities sector.

These incidents reveal a broader trend: risks in the energy and utilities sector are no longer isolated to one area. Cyber, climate, and operational risks are all closely connected, and they need to be dealt with in a unified way. Organizations can become more resilient and protect themselves from future disruptions by choosing proactive, connected risk strategies and learning from previous incidents.

To meet these challenges, whether from cybersecurity, climate change, or regulation, organizations need to align their program strategies with longstanding standards and regulations. Frameworks and regulations provide structure to effective risk management programs that are both resilient and compliant.

Key Frameworks and Regulations to Guide Risk Management

Navigating the complex regulatory environment requires a thorough understanding of relevant frameworks and standards.

Industry-Standard Frameworks

• ISO Standards: ISO 50001 (energy management), ISO 14001 (environmental management), and ISO 45001 (safety management) provide a foundation for effective risk programs.
• ESG Frameworks: Standards like the Global Reporting Initiative (GRI) and the Task Force on Climate-Related Financial Disclosures (TCFD) guide organizations in disclosing sustainability and climate-related risks.

Navigating Regional Regulations

• U.S.: Compliance with the NERC and FERC standards is essential for grid reliability and security.
• EU: ESG reporting requirements, such as the Corporate Sustainability Reporting Directive (CSRD), demand transparency in operations, or the EU Energy Efficiency Directive focuses on energy efficiency, renewable energy, and a resilient electricity market.
• Asia: Renewable energy tracking through International Renewable Energy Certificates (I-RECs) is gaining traction in the region that allows companies to credibly track and report renewable energy use.

Best Practices for Risk Management in Energy & Utilities

To confront these challenges, risk professionals in the energy and utilities sector need to implement a proactive and interconnected strategy. Here are four essential practices to guide your efforts:

1. Build an Integrated Risk Management Framework

Fragmented risk management approaches can leave organizations vulnerable to blind spots. By consolidating third-party, IT, and operational risks into an integrated risk management framework, you can enhance your organization’s risk posture and resilience.

• Harmonize risk priorities: Establish a common risk language across departments to improve communication and collaboration.
• Break down silos: Encourage cross-functional teams to work together on risk assessments and mitigation strategies.
• Consider the full picture: Procure the right resources and processes to address all risk domains and their unique requirements across IT, ESG, and other risk types. 

2. Leverage Technology to Enhance Risk Oversight

Technology greatly enables modern risk management. A connected risk platform, such as AuditBoard, can help organizations streamline processes and improve decision-making.

• Cultivate business resilience: Harmonize enterprise, operational, third-party, and IT risks within a single platform to gain a comprehensive view of vulnerabilities.
• Manage risks holistically: Address climate, safety, and cyber risks together, ensuring that all critical areas are covered.
• Enable early warnings: Implement operational risk management tools to detect and address issues before they escalate.
• Capture real-time data: Connect frontline workers to risk tools that are easy to use to ensure timely and accurate reporting.
• Foster collaboration: Use technology to support cross-departmental visibility, therefore enabling more informed decision-making and enhanced participation of stakeholders.

3. Prioritize Cyber and Climate Resilience

Cybersecurity and climate-related risks call for deliberate attention and early preparedness.

• Strengthen cyber defenses: Implement frameworks like the Cybersecurity Capability Maturity Model (C2M2) to evaluate and enhance cyber readiness.
• Integrate climate risk into planning: Conduct climate risk assessments to identify vulnerabilities and prioritize investments in resilience.

4. Foster a Collaborative Risk Culture

Building a strong and collaborative risk culture is essential for effective risk management.

• Engage stakeholders: Encourage employees at all levels and across the three lines to participate in risk discussions and align risk appetite with organizational objectives.
• Promote shared ownership: Empower cross-functional teams to take collective responsibility for risk outcomes.

Leveraging Connected Risk Technology for Better Outcomes

Technology is increasingly becoming a foundation for modern risk management to address the complex challenges and regulations within the energy and utility sector. Organizations within this industry are transforming how they manage risk with the help of technology platforms like AuditBoard. By centralizing risk data and enabling collaboration, these solutions help organizations address complex challenges and improve overall resilience.

In addition, a connected risk solution incorporates artificial intelligence (AI) for AI-powered insights and intelligent recommendations to augment their capabilities and business impact to better manage risks holistically.

Benefits of a Connected Risk Platform

• Unified Risk Management: Break down silos and manage enterprise, operational, third-party, and IT risks within one platform.
• Holistic Risk Oversight: Address cybersecurity, climate, and safety risks collectively to ensure comprehensive coverage.
• Proactive Issue Detection: Use operational risk management tools like KRIs to monitor grid performance and receive early warnings of potential disruptions.
• Real-Time Risk Data: Empower frontline workers and risk owners to input risk data and capture risk events, enabling faster and more accurate decision-making.
• Enhanced Collaboration: Facilitate cross-departmental communication to align risk strategies and engage stakeholders effectively.

By leveraging connected risk technology, organizations can move beyond traditional approaches and adopt a proactive, data-driven strategy at the intersection of AI innovation that strengthens resilience and supports long-term success.

Keeping the Lights On

Managing risks in the energy and utilities sector is like maintaining a power grid during a storm — success depends on preparation, communication, and technology. Adopting a connected risk approach helps organizations to coordinate their activities, foresee challenges, and assure long-term resilience.

Just as a well-maintained grid keeps the lights on for millions, an effective program for managing risks safeguards an organization’s operations, reputation, and future. By leveraging technology, fostering collaboration, and aligning with global standards, energy and utility companies can navigate today’s challenges and illuminate the path to sustainable growth.

By integrating proactive approaches, key frameworks, connected risk technologies, energy and utility organizations can meet today’s challenges and ignite a sustainable future, allowing organizations in this dynamic sector to bring together their activities, anticipate difficulties, and ultimately guarantee resilience into the future.

About the authors

Claire Feeney is a Senior Product Marketing Manager at AuditBoard focused on ESG and RiskOversight. In her role, she helps support organizations in transforming their enterprise risk management and sustainability programs. Prior to joining AuditBoard, Claire worked in product marketing at OneTrust, VMware, and Infor. Connect with Claire on LinkedIn.