December 15, 2017 Read More →

Decarbonization of U.S. Utility Sector Gains Steam

S&P Global Market Intelligence:

As the Trump administration pursues policies to benefit the fossil fuel industry, the trend toward decarbonization among electric utilities in the United States is picking up steam.

Shareholders have been pushing for investor-owned electric utilities to be more proactive and transparent when addressing environmental, social and governance risks and several management teams are responding. The Edison Electric Institute recently announced the launch of a pilot ESG and sustainability-related reporting template to help electric utilities provide uniform and consistent information.

Duke Energy Corp., American Electric Power Co. Inc. and NiSource Inc. are among the investor-owned utilities to announce their participation in EEI’s broad working group that helped develop the template.

Separately, PPL Corp. on Nov. 30 released its Climate Assessment report and plan to dramatically reduce emissions by 2050 in response to a request by its shareholders to analyze the costs and feasibility of limiting global warming to “no more than 2 degrees Celsius over pre-industrial levels,” which is tied to the Paris climate pact signed in 2016.

President Donald Trump’s plans to initiate a U.S. withdrawal from the Paris Agreement have so far done little to alter the course for utilities focused on clean energy and ESG risk management.

Credit rating agencies believe utilities, by and large, have the inherent capability to proactively address ESG concerns. Still, shareholder groups see the need for progress.

Lila Holzman, energy program manager for the nonprofit shareholder advocacy organization As You Sow, agreed that several investor-owned utilities are taking steps to improve their ESG reporting.

“One of the greatest challenges for investors has been the inconsistency with which utilities provide such disclosures on various actions including frequency, level of detail, presentation, and the underlying assumptions used in scenario analyses,” Holzman said. “Voluntary reporting initiatives like those of CDP and the Edison Electric Institute have helped draw attention to the need for improved uniformity, and this process must continue evolving to meaningfully respond to shareholder concerns. Participation in programs like these are an important and proactive step that some utilities are beginning to take.”

Holzman warned that utilities that refuse to respond to climate concerns “leave themselves and their shareholders vulnerable to risks being better addressed by peer companies.”

“Proactive companies are those that plan for the ongoing energy transition away from fossil fuels and toward clean sources,” she said. “Transparency and preparation help them to adapt to meet changes in demand in a profitable and sustainable way. Reluctant companies will be left behind and lose their ability to compete, putting their shareholders at risk.”

More ($): Electric utility giants point to progress on ESG uptake

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