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Sector Reports - 12/02/2019

The Electric and Gas Utilities Sector: improved overall ESG performance, though key challenges linked to climate change & energy transition, customer relations and access to energy remain to be fully met.

The sector’s reporting rate is a strength, but the level of controversies affects Vigeo Eiris’ opinion on Electric and Gas Utilities companies’ ability to mitigate ESG risks.

This report provides Vigeo Eiris’ exclusive opinion on sector vulnerabilities, controversies and emerging risks, as well as strengths, innovations and best practice in terms of CSR. The report analyses the challenges faced by the sector on key issues such as renewable energy development, climate change, nuclear safety, customers’ responsible management and access to energy in developing countries.

 

  • The Electric & Gas Utilities sector contains 223 companies and is comprised of two major sub-sectors: power/heat generation and/or distribution; and electricity and/or gas network operation and management. 56% of the companies are integrated; 23% operate solely on transmission and distribution; 18% are energy generation companies; and only 4% generate renewable energy exclusively. In terms of geographical distribution, 32% of companies are located in North America, 28% are in Europe, 24% are in Emerging Markets and 16% are in Asia Pacific.
  • Vigeo Eiris awarded an average overall score of 35.5 to companies in the Electric & Gas Utilities sector on a scale of 0 to 100, compared to an average overall score of 33.5 in our previous review. This slight increase is mainly due to companies’ improved performance on the development of renewable energies, non-discrimination & diversity and enhanced transparency on executive remuneration.
  • The sector ranks 6th out of Vigeo Eiris’ 39 sectors, covering a total research universe of 4,500 companies. Previously, the sector ranked 11th.
  • Sector leaders are concentrated in Europe, with an average score of 46/100 whilst laggards are mostly listed in Asia-Pacific with an average score of 30/100. The sector’s top performers – Terna, Endesa, Energias de Portugal, Enel, Electricité de France, Grupo Iberdrola, Red Electrica and Engie – achieve an average score of 65/100.
  • The sector reporting rate is 63%, which is above the universe average (55%). European companies are most comprehensive in communicating their ESG policies, practices and performance, with an average reporting rate of 78%. Of note, Électricité de France (EDF) has a reporting rate of 100%. Companies from the Asia Pacific zone are least communicative, with a reporting rate of 50%.
  • ESG risk mitigation scores are limited in relation to reputation (33/100), operational efficiency (38/100) and human capital (33/100). In terms of managing issues that could impact legal security, Electric & Gas Utilities companies display a limited average score (37/100).
  • The sector faces 366 controversies impacting 47% of companies, four of which are considered critical. The controversy severity level is high for 21% of cases, significant for 21% and minor for 3%. The most recurrent controversies relate to disputes with local communities, industrial accidents & pollution and the management of customer relations.

Key Takeaways:

  • Renewable energy: International agreements such as the UN Sustainable Development Goals and the Paris Agreement define the development of the worldwide renewable energy supply as one of the sector’s key responsibilities. Yet Electric & Gas Utilities companies display variable capacity to support renewable energy development with a limited average score of (41.6/100). Nonetheless, this score has increased by 4.7 points since our previous review as companies display more quantified targets for developing renewable energy and generate more of their energy from renewable sources. Overall, 75% of Electric & Gas Utilities companies produce or use renewable energies, but renewables represent a minor percentage compared to fossil sources in 55% of cases.
  • Climate change: Electric and Gas Utilities companies continue to experience increased political pressure and rising consumer & investor expectations regarding their emissions accountability and role in the global energy transition. However, our results show that 41% of companies have an intense carbon footprint and 58% display a weak performance in terms of energy transition. Overall, Electric and Gas Utilities companies obtained a limited average score (30.9/100) in terms of measures to improve the efficiency of power plants and the reduction of non-GHG emissions, and a weak average score (18.4/100) on efforts to improve network energy efficiency and reduce GHG emissions. European companies lead the sector in terms of reducing emissions from their activities.
  • Nuclear safety: The Fukushima accident has significantly increased both public and regulatory scrutiny of nuclear facilities, leading companies to enhance their reporting on nuclear safety efforts. Yet the sector’s level of reporting on nuclear safety provides us with limited assurance of its ability to prevent and control industrial accidents and pollution from nuclear power plants, as illustrated by its limited average score (32.3/100). 20% of companies do not report on measures to prevent and control pollution in their nuclear power plants, while 72% of companies involved in nuclear energy generation do not report the number of nuclear safety events classified on the International Nuclear Event Scale within their nuclear power plants. 70% of companies do not disclose the volume of total radioactive nuclear waste they produce.
  • Responsible customer relations: It is crucial for Electric & Gas Utilities companies to manage their customer relationships responsibly. In particular, companies’ relationship with vulnerable customers can affect their reputation and likelihood of being involved in legal challenges. Our assurance of the sector’s ability to provide responsible customer relations is limited, including measures to effectively handle customer complaints and improve satisfaction (38.6/100); efforts to help customers reduce their energy consumption and improve efficiency (30.3/100) and support in providing vulnerable customers with access to energy (23.5/100). 58% of companies did not disclose sufficient data for their customer satisfaction performance to be assessed. Nonetheless, 78% of companies disclose at least some information on the systems in place to help customers reduce their energy consumption through smart meters, awareness raising campaigns or the promotion of energy efficient appliances. Similarly, 50% of companies disclose at least some information on the systems in place to help vulnerable customers reduce their energy consumption or reduce their bills through measures such as smart metering or non-mandatory tariff schemes.
  • Access to energy in developing countries: Electric & Gas Utilities companies are responsible for contributing to the achievement of the UN Sustainable Development Goals by supporting access to energy in developing countries. For example, companies could share knowledge or technologies or participate in local energy generation, transmission and distribution projects. However, the sector’s overall performance in terms of providing access to energy in developing countries remains weak (23.5/100), with only 24% of companies disclosing dedicated commitments in this regard.

Best performing areas:
o Definition and disclosure of an environmental strategy
o Respect of shareholders’ rights
o Information on internal controls & risk management

Worst performing areas:
o Reduction of GHG emissions from transmission and distribution activities
o Promotion of access to energy and fuel poverty prevention
o Responsible reorganisation

Top Performing Companies:
o Europe: Terna (70/100)
o North America: Sempra Energy (48/100)
o Asia Pacific: AGL Energy (53/100)
o Emerging Markets: EDP-Energias do Brazil (52/100)

Companies making best progress since 2017:
o Europe: Iren (+27)
o North America: No progress
o Asia Pacific: No progress
o Emerging Markets: Transmissiora Alianca de Energia Eletrica (+17)

To view an excerpt of our 2018 Electric and Gas Utilities sector report, download the document below.
To enquire about accessing our sector reports, please contact the relevant team below:
If you are an investor: investorcustomer.service@vigeo-eiris.com
If you are a corporate entity: corporatecustomer.service@vigeo-eiris.com
If you are an NGO or a university: contact.academique@vigeo-eiris.com
If you are a journalist: news@vigeo-eiris.com

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Keywords : ESG