CLAP: utilities sector discussion note and 19 November 2020 roundtable

Last week we learned that the global consulting firm, FTI Consulting helped design, staff and run astroturf  organizations to enable large fossil fuel companies to block action on climate policy. And this week, the FBI raided the home of the Chairman of the Public Utilities Commission of Ohio linked to corruption surrounding a $1 billion-plus ratepayer bailout of two nuclear power plants. The pervasive use of influence and lobbying tools by power utilities and their trade associations opposed to the energy transition is the focus of Preventable Surprises’ fourth Corporate Lobbying Alignment Project (CLAP) sector discussion note, focused on the power utilities sector. Power utilities and their trade associations are key to achieving climate progress as they operate at the nexus of the decarbonisation in transport, energy generation and the built environment. 

Our new note explains how investors can prepare to challenge corporate capture of climate policy in the United States, Canada, Australia, and other jurisdictions through the Covid-19 recovery period and beyond. We will discuss these questions and more in our online investor roundtable on 19 November with experts from Australia, North America and Europe.

Forceful stewardship options to unblock the energy transition in the power utilities sector

The note flags how shareholders who are already bringing resolutions on corporate lobbying can move beyond the focus on disclosure to request that companies publicly commit to align their policy influence activities with climate targets and to end membership in trade associations who undermine climate policy. Engagement with companies could also push trade associations to better align their advocacy with net zero energy transition goals that the companies have committed to. Companies like National Grid USA who have committed publicly to action on decarbonisation targets can follow through and align their own lobbying and trade association actions with their public statements. Investors and banks who are publicly exiting coal fired power generation projects are helping to amplify the message that the continued pursuit of high emissions power generation will lead to further corporate bankruptcies. In addition, some forward-looking equity investors are asking the ESG ratings oligopoly – Morningstar, Refinitiv, S&P, MSCI etc.  to better incorporate corporate lobbying metrics into their ESG scoring for power utilities and other companies.  

Bondholders also have an important role to play in addressing corporate policy capture in the sector. Debt investors have a dual opportunity to both engage with power utilities issuers and with credit rating agencies by commenting on their methodologies. For companies who won’t take action to update their climate lobbying practices, investors can use coordinated divestment of their bond holdings to send a strong market signal. Access to bond markets and lending for coal-heavy power, gas, and nuclear utilities could be strategically curtailed in the same manner as bank lending and bond market access for coal mining companies has been. Investors in sovereign bonds can also engage with sovereign issuers on energy transition and investment decisions, particularly in relation to the global expansion of coal and natural gas-fired power systems in some markets.

A recent Oxford study of over 3,000 power utilities showed that 60% of the renewable energy-prioritizing utilities had not ceased concurrently expanding their fossil-fuel portfolio, compared to 15% reducing it. These findings point to electricity system inertia and the utility-driven risk of carbon lock-in and asset stranding. Beyond climate change, investors who are concerned about their near term bottom line should be working to ensure that the world’s largest power utilities are ready for the distributed clean energy future that is taking shape across markets.

Investors responses to an entrenched fossil fuel industry must tackle policy capture

Investors, including members of investor associations like the ICGN and UN-PRI can take decisive steps to address policy capture heading into the COP26:

1. Bring sector wide shareholder resolutions demanding lobbying disclosure by all major utilities companies;
2. Incorporate climate lobbying alignment questions and benchmarking metrics into existing stewardship activities;
3. Request board-level engagement on corporate climate lobbying alignment and request meetings with corporate counsel on this issue.

The US institutional investor statement regarding decarbonisation of electric utilities, hosted by the New York City Comptroller’s Office, provides a strong model for their global peers to follow. The statement demands clear information and action from power utilities to address the challenge of corporate policy capture. The statement asks power utilities to bring climate risk mitigation into the boardroom decision making process by asking companies to:

1. Identify who on the board is responsible for overseeing an economically attractive execution of the transition, which could occur by forming a decarbonization transition committee of the board; 
2. Develop and publish a detailed transition plan toward achieving net-zero emissions by 2050 (or earlier target), with clear near-term benchmarks and plans for 2025 and 2030. Plans should account for impacts on communities and workers and the mitigation of those impacts as part of the transition; 
3. Meaningfully incorporate transition milestones into executive compensation metrics; and 
4. Disclose how a utility’s political, lobbying and trade association activities will support its decarbonization commitment.

These action points indicate a range of options for investors who are ready to address corporate capture of climate policy in the power utilities sector.

Change is possible

Investors can help accelerate the energy transition and dampen systemic risks linked to runaway climate change by engaging with power utilities to better align their business models and lobbying conduct with climate targets. There is a great deal of progress to be made. But we know that change is possible. Positive role models within the power utilities sector include Hawaiian Electric, Next Era, DONG, and ENEL, among others. As climate policy action accelerates in the European Union and is revived in the United States under a new administration, investors have a unique window of opportunity to press for greater alignment on climate policy lobbying. Not taking a stand on company and trade association lobbying that undermines climate policy is no longer an option for responsible investors.

Join us this week for a deeper dive into the power utilities sector and check out more of our upcoming CLAP online roundtables below.

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Corporate Lobbying Alignment Project sector topics and online investor roundtable dates (all running 15:00 – 16:30 GMT)

Power utilities (Thursday, 19 November 2020)

Materials – petrochemicals & agrochemicals (Thursday, 10 December 2020)

The Border Industrial Complex – private prison operators & tech companies (Thursday, 14 January 2021) 

Financial services (Thursday, 21 January 2021)

Financial regulators & policymakers (Thursday, 25 February 2021)

Final Online Dialogue & asset manager ranking launch (Dates TBC, April 2021)