switzerlanden
Engaging with electric utilities on climate change strategies

Engaging with electric utilities on climate change strategies

17-10-2019 | Insight
Replacing fossil fuels with clean energy is a key element in limiting climate change. Disclosures on the strategy that electric utilities have for this is particularly important, as they are at the forefront of the energy transition.
  • Cristina Cedillo Torres
    Cristina
    Cedillo Torres
    Engagement Specialist
  • Carola van Lamoen
    Carola
    van Lamoen
    Head of Sustainable Investing

Speed read

  • Report outlines the results of engagement with nine electric utilities
  • All nine companies are focusing on decarbonization in the long run
  • Mixed results on transparency of retiring coal-fired power stations

To try to define best practices and raise levels of knowledge about the issue, Robeco and Lyxor Asset Management have assessed the climate-related disclosures of nine US and European electric utilities with the largest carbon footprints.

Its findings have now been published in a report entitled ‘Are electric utilities’ governance and strategies fit for the energy transition?’ The analysis will allow investors to identify best practices on climate-related disclosures in the utilities sector, which can support future engagement activities.

Stay informed on our latest insights with monthly mail updates
Stay informed on our latest insights with monthly mail updates
Subscribe

Serious stability risks

“Climate change poses serious risks to the stability of the global economy and is likely to impact many economic sectors,” says Carola van Lamoen, Head of Active Ownership at Robeco. “One of the sectors with the most significant exposure to climate-related risks is utilities, as this sector lies at the core of the energy transition.”

The assessment was based on how effectively the nine utilities were adhering to the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) launched by the Financial Stability Board in June 2017. They have four core elements: governance, strategy, risk management, and metrics and targets.

The highlights of the report are:

  • All nine companies are focusing on decarbonization in the long run, setting ambitions for 2030 and even 2050. Three have made the ambitious commitment of becoming carbon neutral by 2050.
  • All nine have also incorporated the management and oversight of climate-related issues into existing governance structures. Eight of them explicitly report that their board of directors is responsible for monitoring these issues.
  • Three companies have a committee dedicated to sustainability issues, but only one explicitly tasks a risk management committee with the oversight of internal controls related to sustainability.
  • Three companies link the remuneration of their CEO to their climate strategies, using metrics to assess performance-related pay.
  • All nine companies have committed to not developing any new coal capacity, and to reducing existing exposure, but transparency remains a problem.

Issues are being addressed

“It is encouraging to find these issues are being addressed by the companies’ top management and boards of directors,” says Florent Deixonne, Head of Governance and Responsible Investment at Lyxor.

“However, only a minority of companies disclose the areas of attention and tasks being undertaken by the board and their committees, and explain how management and board interact with each other. Such disclosures would facilitate investors’ assessment of the extent to which climate-related issues receive appropriate board and management attention.”

Linking climate change to pay

In terms of financial incentivization, only three of the companies link the remuneration of their CEO to their climate strategies. “Remuneration is an important tool to align executives’ and staff’s interests with metrics and targets that promote business resilience, and thus create long-term value,” says Déborah Slama Yomtob, SRI Analyst in charge of voting and engagement activities at Lyxor.

“As the energy transition is challenging the business model of electric utilities, remuneration policies are important to incentivize management into aligning the corporate strategy towards a low-carbon economy.”

No to coal

All nine companies have committed to not developing any new coal capacity, and to reducing existing exposure. “More transparency is needed on the retirement schedule of coal-fired plants,” says Robeco engagement specialist Cristina Cedillo Torres.

“The timing of this is important to understand the future financial impact on companies and the investments that will be needed to develop alternative generation sources. Carbon neutrality can only be achieved if new technologies and supporting infrastructure are developed. Some examples of this are battery storage, smart grids, and carbon capture and storage.”

Wider climate action

As active sustainable investors, Robeco and Lyxor’s engagement with electric utility companies forms part of the wider Climate Action 100+ Initiative, a global investor coalition with over 360 signatory asset owners and asset managers with USD 34 trillion in assets under management.

The initiative aims to secure commitments from boards and senior management to (among others) implement a strong governance framework which clearly articulates the board’s accountability and oversight of climate change risk and opportunities, and to enhance disclosures in line with the TCFD recommendations.

Logo

Disclaimer Robeco Switzerland Ltd.

The information contained on these pages is for marketing purposes and solely intended for Qualified Investors in accordance with the Swiss Collective Investment Schemes Act of 23 June 2006 (“CISA”) domiciled in Switzerland, Professional Clients in accordance with Annex II of the Markets in Financial Instruments Directive II (“MiFID II”) domiciled in the European Union und European Economic Area with a license to distribute / promote financial instruments in such capacity or herewith requesting respective information on products and services in their capacity as Professional Clients. 

The Funds are domiciled in Luxembourg and The Netherlands. ACOLIN Fund Services AG, postal address: Affolternstrasse 56, 8050 Zürich, acts as the Swiss representative of the Fund(s). UBS Switzerland AG, Bahnhofstrasse 45, 8001 Zurich, postal address: Europastrasse 2, P.O. Box, CH-8152 Opfikon, acts as the Swiss paying agent. The prospectus, the Key Investor Information Documents (KIIDs), the articles of association, the annual and semi-annual reports of the Fund(s) may be obtained, on simple request and free of charge, at the office of the Swiss representative ACOLIN Fund Services AG. The prospectuses are also available via the website www.robeco.ch. Some funds about which information is shown on these pages may fall outside the scope of the Swiss Collective Investment Schemes Act of 26 June 2006 (“CISA”) and therefore do not (need to) have a license from or registration with the Swiss Financial Market Supervisory Authority (FINMA). 

Some funds about which information is shown on this website may not be available in your domicile country. Please check the registration status in your respective domicile country. To view the RobecoSwitzerland Ltd. products that are registered/available in your country, please go to the respective Fund Selector, which can be found on this website and select your country of domicile. 

Neither information nor any opinion expressed on this website constitutes a solicitation, an offer or a recommendation to buy, sell or dispose of any investment, to engage in any other transaction or to provide any investment advice or service. An investment in a Robeco Switzerland Ltd. product should only be made after reading the related legal documents such as management regulations, prospectuses, annual and semi-annual reports. 

By clicking “I agree” you confirm that you/the company you represent falls under one of the above-mentioned categories of addressees and that you have read, understood and accept the terms of use for this website.

I Disagree