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Climate Action 100+ sets decarbonisation expectations for electric utility companies to achieve net zero emissions globally by 2040

20th October 2021

IIGCC publishes a global sector strategy for electric utilities as part of Climate Action 100+ initiative, outlining priority actions for companies to remain within limited emissions budget set by IEA net zero pathways

  • Report finds majority of companies still need to set net zero targets whilst existing net zero targets need to be brought forward by 10-15 years
  • Only one of 68 publicly listed power companies has a decarbonisation plan consistent with the IEA 1.5C pathway
  • Findings will support investor engagement with leading electric utility companies through Climate Action 100+

Investors involved in Climate Action 100+, the world’s largest investor engagement initiative on climate change with signatories responsible for over USD $60 trillion in assets, have set actions the electric utilities sector needs to take to decarbonise in line with the IEA Net Zero by 2050 scenario[1].

These actions, outlined in Global Sector Strategies: Investor interventions to accelerate net zero electric utilities, were published today by IIGCC, one of the founding investor networks of Climate Action 100+. The report will inform constructive engagement between investors and electric utility companies on their net zero transitions.

Representing 40%[2] of annual emissions, the global electricity sector is responsible for more emissions than any other sector, with many sectors dependant on the decarbonisation of electricity for their own net zero plans. With electricity demand predicted to grow over 166% globally by 2050, urgent action is needed now to decarbonise the sector and limit the global temperature rise to 1.5oC.[3]

Although the emissions intensity of power generation is falling, absolute emissions are not. In fact, developing countries – particularly in Asia – continue to expand their fossil fuel generation assets.

In order to align with the IEA’s Net Zero by 2050 scenario, emissions from electricity generation need to reach net zero by 2040 globally and by 2035 in advanced economies[4]. The pathway to reaching these targets is critical, with most of the reduction in annual emissions needing to take place by 2030.

Whilst many power companies believe they can achieve net zero emissions[5], the sector is not currently on track to reach this within the timeframe required. The report finds that Ørsted is the only one of the 68 publicly listed power companies assessed by the Transition Pathway Initiative to have a decarbonisation plan consistent with the IEA 1.5oC pathway[6].

Urgent and accelerated ambition is needed – more companies need to set net zero targets and existing targets need to be brought forward by 10-15 years.

The report also outlines investors’ expectations of how companies should address the social impact of their plans to achieve net zero by striving for a ‘just transition’. Companies should aim to mitigate any negative social impacts on vulnerable groups and maximise benefits to workers, communities, customers and the value chain.

To accelerate coordinated action, IIGCC and lead investors, in consultation with external sector experts and Climate Action 100+ focus companies in the electric utilities sector, have outlined priority actions for individual companies, the broader sector and investors.

Key expectations of companies, which are mapped against the Climate Action 100+ Net-Zero Company Benchmark indicators, include:

  • Setting a target to reach net zero in their generation business by 2040 globally and by 2035 in advanced economies, with more than 50% of decarbonisation achieved by 2030.
  • Mapping out a clear decarbonisation strategy that minimises reliance on CCUS, avoids the use of carbon offsets to reduce generation emissions to net zero and sets a date to phase out unabated coal generation.
  • Aligning capex with 1.5oC pathway, including an immediate halt to investments in new coal generation and a commitment to ensure any new natural gas generation will be net zero by 2040 globally and by 2035 in advanced economies.
  • Setting a net zero target for all sold or distributed energy, with a focus on natural gas for heating.
  • Committing to provide a just transition, setting out in a board level report how a company intends to manage the wider societal impact of the net zero transition and who will be responsible for implementation

The report is part of the Climate Action 100+ Global Sector Strategies workstream and also asks the electric utility industry to collaborate on sector-wide action to accelerate progress by:

  • Collaborating to remove common policy barriers to net zero via the appropriate national and regional industry bodies and publishing a joint report identifying actions that policymakers should take to overcome these barriers.
  • Funding joint R&D projects with peers and other value chain participants to accelerate the removal of key technological barriers to net zero.

“Electric utility companies need to lead the transition to net zero, with much of the technology and tools required to reach this available earlier than in other sectors. But we’re not seeing ambitious enough targets from companies to get there and the sector is urgently running out of time. The report’s actions will help inform investor engagement with companies, clearly and definitively outlining what business alignment with net zero transition goals looks like”, says Stephanie Pfeifer, IIGCC’s Chief Executive and current Climate Action 100+ Steering Committee Vice-Chair. “As recently highlighted by the head of the International Energy Agency, trebling clean power investments in the next decade will be a key contributor to overcoming challenges that the energy sector is currently facing. This report highlights that overcoming barriers to achieve this level of investment is possible and provides clear actions for companies and investors to accelerate a rapid and just transition in the power sector.”

The report also specifies priority actions for investors to support companies as they transition to a net zero economy. These include supporting action to remove regulatory and policy barriers by working in coordination with the partner networks that coordinate Climate Action 100+ (AIGCC, Ceres, IGCC, IIGCC and PRI) to call for the removal of these barriers. Investors should also scale up clean energy investments in developing countries by engaging with Multilateral Development Banks and Development Finance Institutions to deploy additional capital to suitable clean energy projects in developing countries.

Jake Barnett, Director of Sustainable Investment Stewardship at Wespath, said: “As an asset owner committed to achieving net zero in our investment portfolio by 2050, Wespath’s foremost concern is engaging in ways that support a 1.5 degree-aligned future for the real economy. The recent IEA NZE pathway illustrates the scale of the energy transformation needed to achieve this goal including ambitious targets and immediate action within the utility sector. This report helps give investors a roadmap to strengthen engagement with power utility companies on the transition to net zero to accelerate the electrification and decarbonization of the broader economic system.”

Ashley Hamilton Claxton, Head of Responsible Investment at Royal London Asset Management, said: “Net zero electricity generation by 2035 is ambitious, but technically feasible and we want to partner with companies and government to make it commercially viable. The focus of our expectations is action in the next decade, when the bulk of emission reduction and scaling of electrification needs to happen. We know the ride towards net zero is not a straight line, but rather a bumpy ride where reliance on fossil fuels will tie us to price fluctuations as we are currently experiencing and expose the most vulnerable members of our society. This is why at RLAM we champion ‘Just Transition’ and want to partner with companies and governments to smooth the way to net zero, incorporating social impact into climate action.”

As a globally coordinated effort led by the investor networks that deliver Climate Action 100+, in consultation with lead investors, signatories, external experts and focus companies, this sector strategy is part of the Global Sector Strategies workstream. Global Sector Strategies on Aviation, Steel and Food and Beverage have been published to date.

Stephanie Maier, Global Head of Sustainable and Impact Investment at GAM Investments and current Climate Action 100+ Steering Committee Chair, said: “Net zero presents a substantial growth opportunity for companies in the industry – and it is our fiduciary duty to protect the long-term returns of our clients invested in these companies. With power companies focused on renewables outperforming their peers in creating shareholder value over the last five years, it is clear that accelerating the clean energy transition of the power sector reduces financial climate-related risk for investors whilst contributing to a significant reduction in global emissions. The action companies take by 2030 will decide who will thrive in a net zero world.”

Through its investor networks, Climate Action 100+ is developing global sector strategies for a number of key sectors over the course of 2021 and 2022. The global recommendations of each strategy will be tailored into region and sector-specific actions that investors can take to sectors and focus companies in their regions.

Climate Action 100+ is the world’s largest investor engagement initiative on climate change. It now includes more than 615 investors with USD $60 trillion in assets under management.

– Ends –

This content was originally published on IIGCC.org. 

Notes for Editors

This report was developed by the Institutional Investors Group on Climate Change (IIGCC) as part of the Global Sector Strategies, a workstream coordinated by the investor networks that coordinate Climate Action 100+.  Each strategy is led by the investor network with the most strategic knowledge of the sector, in consultation with the other supporting investor networks, Climate Action 100+ signatories, external experts and focus companies.

The workstream aims to inform and enhance existing investor engagements by providing sector-specific requests to the initiative’s focus companies. For more information, you can view the published Climate Action 100+ Global Sector Strategies here and read the blog here.

About IIGCC

The Institutional Investors Group on Climate Change (IIGCC), is the European membership body for investor collaboration on climate change and the voice of investors taking action for a prosperous, low-carbon future. IIGCC has more than 350 members, mainly pension funds and asset managers, across 22 countries, with over €42 trillion in assets under management. IIGCC works to support and help define the public policies, investment practices and corporate behaviours that address the long-term risks and opportunities associated with climate change. For more information visit www.iigcc.org and @iigccnews.

About Climate Action 100+

Climate Action 100+ is the world’s largest investor engagement initiative on climate change. It involves more than 615 investors, responsible for over $60 trillion in assets under management. Investors are focused on ensuring 167 of the biggest corporate greenhouse gas (GHG) emitters take the necessary actions to align their business strategies with the goals of the Paris Agreement. This includes improving corporate governance, reducing GHG emissions, and strengthening climate-related financial disclosures.

The 167 companies include the initial 100 ‘systemically important emitters’, identified with the highest combined direct and indirect GHG emissions, and additional companies selected by investors as critical to accelerating the net zero transition.

Launched in 2017, Climate Action 100+ is coordinated by five investor networks: Asia Investor Group on Climate Change (AIGCC); Ceres (Ceres); Investor Group on Climate Change (IGCC); Institutional Investors Group on Climate Change (IIGCC) and Principles for Responsible Investment (PRI). These organisations, along with five investor representatives from AustralianSuper, California Public Employees’ Retirement System (CalPERS), Gam Investments, Ircantec, and Sumitomo Mitsui Trust Asset Management form the global Steering Committee for the initiative. Follow us on Twitter: @ActOnClimate100.

Footnotes:

[1] IEA Net Zero by 2050 – A Roadmap for the Global Energy Sector: https://www.iea.org/reports/net-zero-by-2050

[2] IEA Net Zero by 2050 – A Roadmap for the Global Energy Sector

[3] IEA Net Zero by 2050 – A Roadmap for the Global Energy Sector

[4] As specified by IEA Net Zero by 2050 report, advanced economies refer to the OECD regional grouping and Bulgaria, Croatia, Cyprus, Malta and Romania.

[5] At least 23% of publicly listed power companies analyses are aiming to reach net zero emissions for their electricity generation business by 2050: Transition Pathway Initiative: “Management Quality and Carbon Performance of Energy Companies”, September 2020 update.

[6] TPI September 2020 update as above.