Investors Suggest First Steps in Decarbonizing Utilities

Institutional investors representing $1.8 trillion in assets, including Trillium Asset Management and the Nathan Cummings Foundation, recently released a statement urging decarbonization across the power generation sector.

“Decarbonization,” which means the removal of greenhouse gases from a process, is also used as a term describing the push to eliminate fossil fuel usage and switch to entirely renewable resources. It’s a central part of the 2015 Paris Accords, to which the U.S. is still a party until next year, despite President Trump’s announcement of withdrawing from the agreement early on in his administration. “Net Zero by 2050” is an oft-repeated slogan of the accords, which requires signatories to have a net-zero carbon emission by 2050 in order to limit climate change to 1.5 degrees Celsius.

The statement begins with a candidness that’s refreshing coming from energy and utilities investors, citing the imminent “climate disaster” and the need for “rapid and profound near-term decarbonization of the energy supply.” These investors lean heavily on the Intergovernmental Panel on Climate Change’s (IPCC) recent report on the progression of climate change.

Of course, as investors, their motivations aren’t entirely altruistic in nature. They have already begun to see declines in their investments that are in line with the expected damages caused by climate change – which include severe weather, reduced agricultural yields and pollution-related health problems. The statement urges utilities to not just strive for net zero, but to enforce it so that a projected $20 trillion in damages caused by climate change can be avoided.

The document emphasizes that the transition to net zero is not merely a cost-mitigating move — there are myriad opportunities for utilities to grow and prosper in a low-carbon world. Coal and gas are becoming more expensive than renewables sources such as solar and wind power, and recent trends in public opinion polling has indicated that more citizens are concerned about the impacts of climate change. Capitalizing on social capital will be the key to staying relevant.

One must keep in mind that utilities and energy production are long-term capital investments. Furthermore, they are so enormous and entrenched that it takes immense momentum to change direction — especially one so drastic as the complete divestment of fossil fuels and a 100 percent reliance on renewables within 30 years. It won’t be an easy transition, even if the per-unit costs of renewables are cheaper.

That’s why there is such an importance placed on the need for immediate, tangible action. Every month of delay is another month it will take to recoup the inevitable infrastructure investment, the cost of which will be compounded by the rising damages caused by climate change.

To get the ball rolling, this group of investors offers four actionable solutions to help utilities usher in the decarbonization era:

1. Identifying an individual on the board to oversee an economically attractive transition; possibly also creating a decarbonization committee.
2. Publishing a step-by-step transition plan to achieve net-zero emissions by 2050 at the latest. Place an emphasis on achievable, near-term benchmarks. Consider impacts on communities and employees and plan to mitigate them.
3. Base executive compensation on achieving transition milestones.
4. Justify spending on political and lobbying activities — how does it support the decarbonization goal?

The investor’s statement is more than just lip service. Indeed, these suggestions are indicative of a surprising level of self-awareness. They address several commonly-raised concerns about the place of capitalism in climate change and how corporations can be both profitable and ethical.

Decarbonization is not a death knell for utilities. It’s an opportunity to rejuvenate them with a model more sustainable for the planet, its people and the global economy.

Image credit: Michael Schwarzenberger/Pixabay