Electric companies make headway on environmental, social, and governance issues
Environmental, social, and governance (ESG) issues have become an important consideration for investors, and electric companies are working to implement strategies to provide transparency and meet their goals in all three areas.
“An effective ESG strategy can help a company better manage its operational risks and to manage a company’s reputation,” Gwen Mizell, vice president of Sustainability and Electrification at Ameren, said.
The environmental section of Ameren’s ESG strategy is directly linked to electrification, and the company recently established a net-zero carbon emissions goal by 2050 across all its operations in Missouri and Illinois.
Mizell and other experts spoke on a panel about emerging social and governance issues at the 2020 EEI Financial Conference on Wednesday, sponsored by the Edison Electric Institute.
Amy Lissauer, managing director and Global Head of Activism and Raid Defense at Bank of America, has found that many companies in all industries were focused on the governance part of ESG, but “it was the ‘E’ and the ‘S’ that didn’t necessarily get told as well.” She felt a change in 2020, but it didn’t end up the way anyone expected.
“Starting back pre-COVID, it kind of felt like it was going to be the year of the environmental disclosure,” she said. “Now COVID happened, Black Lives Matters has happened, and we now have fast-forwarded everyone to talking about these social issues. I find by talking to a lot of our clients that companies are having those conversations internally but not necessarily disclosing that information for their investors. How do we do a better job of telling the story that you know you’re already thinking about internally and actually getting that messaging out there? If you don’t say it, someone else might say it for you.”
Ben Magarik, vice president of Partnership Strategy at ISS Corporate Solutions, said electric utilities have been at the forefront of the ESG movement.
“Compared to other types of public companies there has been an anticipatory and proactive approach to thinking about investor expectations and demands on sustainability broadly,” he said. “For whatever reason, utilities tend to take a longer view. I think they are a little better than many other public companies in putting themselves in the shoes of how institutional investors think; maybe trying to think a little more proactively, analytically, and in some cases, thinking down the line.”
He has seen that the utilities who view the environmental, social, and governance strategies as interrelated are the ones who are meeting their investor and customer needs.
“As we think about the future, in particular thinking about what investors are likely to consider, the intersection of social considerations and of traditional governance considerations seems to be a place where there is active interest from investors,” Magarik explained.
Jocelyn Perry, EVP & CFO with Fortis, said the gas and electric utility also has environmental goals, with a plan to be 75 percent coal-free by 2035. Although she says the ESG plan at Fortis has traditionally been centered around the environment and governance, the company has made strides this year to focus on social issues.
“We have been a part of our communities,” she said. “Utilities by nature are local, they are in the communities, and they have been very cognizant of their customers and their communities. They have been very involved.”
Fortis, which owns 10 utilities in 17 regions, has focused on a diversity initiative centered mostly around gender. Currently, one-third of the executives are female as well as 40 percent of the board. But Fortis has expanded that effort in 2020 beyond gender.
“You throw a pandemic and you throw civil unrest into this, we had to broaden, and we have done it much quicker than we thought we were going to have to,” Perry said.
Fortis started a diversity, equity, and inclusion (DEI) initiative, with the latest priority being fighting racial injustice.
Con Edison launched its formal diversity and inclusion strategy in 2015, according to Jan Childress, director of Investor Relations at Con Edison. That strategy includes four pillars: learning; using leaders to cascade messages; policies, practices, and procedures; and communication and engagement.
“Grasping the necessity of our measures is as simple as opening our eyes to the world in which we live,” Childress added. “There are 800 languages spoken in our city. A mosaic of races, ethnicities, genders, experiences. That montage brings with it a multitude of ways to look at a challenge and to look at an opportunity.”
The environment is also a priority for Con Edison, and the company has encouraged decision-making based on metrics associated with climate change. “Investors realize that without these metrics and incentives that the cause will move slowly despite the alarming evidence of climate change,” Childress said. “We realize that too at Con Edison.”
Con Edison, as a large company, has tried to manage its ESG and DEI programs while also keeping track of the metrics. “The accountability has to start at the top, it starts with the board, but our chairman is passionate about this.”
Fortis’ diversity program launched with a focus on gender, but the events of 2020 have made the company adjust its focus to race. “I think it comes from having a real intent to change, you’ve got to have the culture, the will and the action plans. And we did for gender. So with race and other forms of diversity that was a reason for our new council that we set up,” Perry said.
Utilities across North America are listening to investor, customer, and employee concerns. The issue of climate change, which many have been dealing with for decades, is still also one of the main concerns for utilities. But social concerns are very new for many of them.
“Utilities tend to do a pretty good job on the “E” [environmental] side in terms of understanding what investors and stakeholders’ ideas and expectations are of things like carbon and greenhouse gas emissions,” Magarok said. “From a governance standpoint utilities tend to be perhaps a little more in sync with investors’ concerns. One of the challenges is that social considerations are newer, they have had less long-term investor interest.”
Because the social aspect is more difficult to measure, it has been a challenge to launch programs, some panelists said, but many utilities have started creating metrics they can measure in the social realm.
Bank of America’s Lissauer noted the World Economic Forum is working on creating metrics for reporting ESG and DEI issues.
“We are data-driven organizations and so I get excited with what we are doing around making sure that diversity and softer issues are quantified and in our risk metrics equal to what we are doing with climate change,” Ameren’s Mizell said.
