The future of the power industry will be shaped by a range of disruptive themes, with the economic, social and governance (ESG) being one of the themes that will have a significant impact on power companies. A detailed analysis of the theme, insights into the leading companies, and their thematic and valuation scorecards are included in GlobalData’s thematic research report,ESG (Environmental, Social, and Governance) in Power – Thematic Research. Buy the report here.
Managing ESG issues is critical for the future of power companies. Not only are investors, customers, and other stakeholders demanding lower carbon emissions, but companies that are not taking a holistic approach to sustainability will also fall behind. Events in the past years have shown that those power companies without a credible ESG plan faced a backlash in the courts, boardrooms, and the public arena. This trend will intensify in the coming decade. Power companies bear much responsibility for climate change and its resulting social effects. Those that can prove they are doing something about it – not just greenwashing – will emerge as leaders.
Reducing emissions is the best way to be an environmental leader. Investment into renewable, low-carbon generation methods has become much easier due to significant reductions in price, especially in offshore wind. Leaders in the power industry are reducing exposure to fossil fuel generation and replacing it with low carbon sources. At the consumer level, individuals now want to power their homes and businesses with renewable power. Not only does renewable generation improve sustainability credentials, but it is also beginning to improve revenues.
However, not all companies are equal when it comes to their capabilities and investments in the key themes that matter most to their industry. Understanding how companies are positioned and ranked in the most important themes can be a key leading indicator of their future earnings potential and relative competitive position. Also, as power companies scramble to reduce emissions, attention must be paid to social and governance issues too. Any company failing in these categories will severely damage its ESG credentials. For instance, lax workplace safety measures or weak cybersecurity protocols are not hallmarks of a sustainable company and repel confidence and investment.
According to GlobalData’s thematic research report, ESG in Power, leading adopters include: Iberdrola, EDF, Orsted, Vestas, NextEra Energy, National Grid, Enel and NRG.
Insights from top ranked companies
Iberdrola is an electric utility. The company generates, transmits, distributes, and markets electricity and natural gas and owns and operates a generation portfolio utilising hydroelectric, thermal, nuclear power plants, and other renewable generation facilities such as wind (onshore and offshore), mini-hydro, solar, and biomass. In November 2020, the company unveiled an investment plan worth €75bn ($88bn) to be spent by 2025. Around half of this amount will be spent on promoting clean energy technologies. The company leads amongst its peers in renewable generation, which produced 58% of its electricity in Q1 2021, along with 35% nuclear, 4% gas, and 3% cogeneration. Iberdrola is the only Spanish company to be named in the Ethisphere Institute’s World Most Ethical Companies list. The company aims to have 30% of management positions filled by women by 2025, and its Electricity for All and Iberdrola Foundation have 14 million and 1.4 million beneficiaries, respectively.
NextEra is an electric utility engaged in the generation, transmission, and distribution of electricity and holds investments in gas infrastructure assets. The company is exposed to natural gas (48% of generation in 2020) but has significant nuclear and wind capacities (both at 23%). Its renewable portfolio generates more electricity from wind and solar than any other company in the world. NextEra was also recognised as number one in the electricity and gas utility industry in Fortune’s list of the World’s Most Admired Companies in 2020, for the thirteenth time in 14 years. It holds the highest ESG rating of AAA from MSCI.
EDF is an integrated electricity company and is engaged in low-carbon electricity generation. The company’s commitment to developing low-carbon energy generation is also backed by a sizeable fleet of nuclear plants: from April 2019 to March 2020, nuclear accounted for 67% of its fuel mix and renewables 21%. Gas and coal comprise the rest, with 9% and 4%, respectively. EDF has committed to achieving carbon neutrality by 2050 and reduced direct CO2 emissions from electricity generation by 17% in 2020 compared to the previous year. The group’s specific CO2 direct emissions were 51g/kWh in 2020, and its target is 35g/kwh by 2030. Under its strategic project, CAP 2030, the group aims to double its renewable capacity by 2030 with an estimated additional investment of between $18bn and $24bn. EDF has conducted numerous community projects to bring sustainable power to underprivileged communities. In 2019, EDF Renewables conducted a project to bring solar power to the remote Sapelo Island, working with local government and suppliers to improve the community’s power infrastructure.
To further understand the key themes and technologies disrupting the power industry, access GlobalData’s latest thematic research report on ESG in Power.