latamen
How do investors expect utilities to deal with COP21?

How do investors expect utilities to deal with COP21?

10-08-2016 | Insight

A group of over 270 institutional investors representing more than EUR 20 trillion in assets recently published a guide for the electric utilities sector. In this guide, they explain how they expect utilities to align their strategies with the low carbon economy required to keep global warming below 2°C. Engagement Specialist Matthias Narr is the lead author.

  • Matthias  Narr
    Matthias
    Narr
    Engagement Specialist

Speed read

  • Investors explain how they expect utilities to adapt to the lower-carbon economy
  • Utilities need to do a comprehensive 2°C stress testing of their business
  • Investors need to know how power companies see the future impact of climate change on energy demand and pricing

The guide, titled ‘Investor Expectations of Electric Utilities Companies - Looking Down the Line at Carbon Asset risk’ , was published by the Institutional Investors Group on Climate Change (IIGCC). In this document, we as investors outline the threats and opportunities for utilities, and explain how we expect them to adapt their business strategies. With over 170 countries now clearly committed to the implementation of the Paris Agreement, institutional investors are concerned that some electric utility companies may not be adequately prepared for the transition to a lower-carbon economy.

The guide is a good example of how we leverage our engagement expertise and bring it onto a global collaboration platform to magnify our impact. With this document we want to shape a constructive dialogue between investors and electric utilities about the long-term risks and opportunities these companies face from climate change.

Investors need to know whether utility companies are prepared for the changing market dynamics that are likely to arise from the policies and actions put in place to limit global warming. Business strategy and capital allocation decisions made now and over the coming years will determine the sustainability and profitability of electric utilities for decades to come. Investors therefore have a clear need to establish that capital allocation decisions made by the boards of these utilities give due weight to the low carbon transition in order to protect the sector’s sustainability and profitability.

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

The impact of a 2°C scenario

During the 2016 proxy season, investors clearly showed, for example in resolutions at the Annual General Meetings of shareholders of AES and Entergy, that they expect electric power companies to address carbon asset risk by assessing the impact of a 2°C scenario on their future resilience. Asset owners and fund managers need to know how power companies see the future impact of climate change on energy demand and pricing, and how they plan to align their business models with the required greenhouse gas reductions.

In addition to questions about policy, technology and demand changes, the guide encourages investors to ask electric utility companies about the management of legacy assets, such as power generation plants that are no longer economical to use, either due to a shift away from thermal coal, or as a consequence of increased water scarcity.

These risks are not theoretical: they are today’s reality for utility companies and their investors across all markets. Climate change is already driving structural transformation in the energy sector. It is essential for utility companies to undertake comprehensive 2°C stress testing of their business activities and to disclose to investors how their business model will fare in the face of climate change.

The guide can be downloaded from www.iigcc.org

Subjects related to this article are:

Important information

The Robeco Capital Growth Funds have not been registered under the United States Investment Company Act of 1940, as amended, nor or the United States Securities Act of 1933, as amended. None of the shares may be offered or sold, directly or indirectly in the United States or to any U.S. Person (within the meaning of Regulation S promulgated under the Securities Act of 1933, as amended (the “Securities Act”)). Furthermore, Robeco Institutional Asset Management B.V. (Robeco) does not provide investment advisory services, or hold itself out as providing investment advisory services, in the United States or to any U.S. Person (within the meaning of Regulation S promulgated under the Securities Act).

This website is intended for use only by non-U.S. Persons outside of the United States (within the meaning of Regulation S promulgated under the Securities Act who are professional investors, or professional fiduciaries representing such non-U.S. Person investors. By clicking “I Agree” on our website disclaimer and accessing the information on this website, including any subdomain thereof, you are certifying and agreeing to the following: (i) you have read, understood and agree to this disclaimer, (ii) you have informed yourself of any applicable legal restrictions and represent that by accessing the information contained on this website, you are not in violation of, and will not be causing Robeco or any of its affiliated entities or issuers to violate, any applicable laws and, as a result, you are legally authorized to access such information on behalf of yourself and any underlying investment advisory client, (iii) you understand and acknowledge that certain information presented herein relates to securities that have not been registered under the Securities Act, and may be offered or sold only outside the United States and only to, or for the account or benefit of, non-U.S. Persons (within the meaning of Regulation S under the Securities Act), (iv) you are, or are a discretionary investment adviser representing, a non-U.S. Person (within the meaning of Regulation S under the Securities Act) located outside of the United States and (v) you are, or are a discretionary investment adviser representing, a professional non-retail investor. Access to this website has been limited so that it shall not constitute directed selling efforts (as defined in Regulation S under the Securities Act) in the United States and so that it shall not be deemed to constitute Robeco holding itself out generally to the public in the U.S. as an investment adviser. Nothing contained herein constitutes an offer to sell securities or solicitation of an offer to purchase any securities in any jurisdiction. We reserve the right to deny access to any visitor, including, but not limited to, those visitors with IP addresses residing in the United States.

This website has been carefully prepared by Robeco. The information contained in this publication is based upon sources of information believed to be reliable. Robeco is not answerable for the accuracy or completeness of the facts, opinions, expectations and results referred to therein. Whilst every care has been taken in the preparation of this website, we do not accept any responsibility for damage of any kind resulting from incorrect or incomplete information. This website is subject to change without notice. The value of the investments may fluctuate. Past performance is no guarantee of future results. If the currency in which the past performance is displayed differs from the currency of the country in which you reside, then you should be aware that due to exchange rate fluctuations the performance shown may increase or decrease if converted into your local currency. For investment professional use only. Not for use by the general public.

I Disagree