Flip the Switch

| 26 March 2017
Guidance notes

A decade of transition in the electric utility sector has made it a difficult place for investors, who face uncertainty around regulations, technological advances, and new entrants. Preventable Surprises works at the interface of asset managers and the companies they invest in, looking for levers the former can use to push the latter toward more sustainable business models. Utilities is a productive area for our work due to inevitable changes facing a sector that remains heavily reliant on fossil fuels. A successful transition to renewables in this industry could accelerate efforts to reduce emissions in line with the Paris Agreement.

Earlier this year, we worked with PwC to bring together representatives of asset managers, NGOs, credit rating firms, regulators, and utilities for a wide-ranging discussion about challenges facing the sector. In a video created after the day-long session, participants reflected on what they learned and the challenges ahead.

We also developed a guidance note to help stakeholders in the sector navigate the shifting terrain. Companies and investors must work together to understand the implications of the transition to a clean power system, which must occur by 2050. Failure to do so threatens shareholder value and the possibility of meaningful emissions reductions.

The guidance focuses on eight key questions for discussion between investors and companies, covering emissions goals; the development of new business models that take account of new opportunities, new technologies and new entrants; the capital expenditure required for the transition; and the internal changes to personnel and incentives needed to facilitate the transition.

It also provides contextual information on all these topics, including relevant recommendations of the Task Force on Climate Related Financial Disclosure. We are continuing to focus on this area due to the complexity of the challenges ahead and the rewards if those challenges are met.