Europe

Engagement Embeds Just Transition at UK Energy Utilities

SSE and EDF demonstrate alignment with best practice, but laggards fail to report.

UK energy utilities are responding positively to engagement efforts by institutional investors aimed at incorporating just transition principles into their net zero strategies, but there are wide differences between leaders and laggards.

The just transition plans of Perth-based SSE and France’s EDF demonstrated most alignment with best practice, according to new analysis, while Centrica performed strongly in terms of support for consumer interests. Neither National Grid nor RWE have yet published full details of their strategies for adopting just transition principles.

The findings were published in a just transition engagement report by Royal London Asset Management (RLAM) and Friends Provident Foundation (FPF), a UK-based charitable foundation focused on promoting a fair and sustainable economy.

The report defines a just transition to a net zero economy as one that takes account of people affected by a shift to clean energy production, including employees, consumers, communities and those working in the sector’s supply chain.

It also notes the tendency of climate change to hit the most vulnerable in society and the need to prevent the net zero transition from exacerbating existing inequalities, pointing out the risks of a “social backlash” which could slow decarbonisation in the event of economic distress from job losses and steeply rising energy bills, concerns of which have been exacerbated by Russia’s invasion of Ukraine.

“During our engagement, we found that energy companies already transitioning are generating more ‘green’ jobs, more purchases from local businesses and finding ways to share value with the communities where they are building green infrastructure,” said Simonetta Spavieri, engagement analyst at Royal London Asset Management.

“We learnt from companies that the barriers to delivering net zero are not technological or engineering, but rather, being able to build massive infrastructure projects and rollouts with the support of communities and bringing down the costs for already existing technologies so that this doesn’t impact price,” she said.

The European Commission is widely expected to announce this week an action plan that will protect consumers from energy price hikes, diversify sources of supply and remove regulatory barriers to investment in renewable electricity capacity, as well as energy infrastructure and efficiency. The UK has already announced plans to increase the flow of renewable energy projects and is expected to make further announcements.

Support for workers and consumers

SSE’s just transition strategy was praised by RLAM and FPF for its alignment with the firm’s overall business plan, as outlined in 20 core principles, as well as its support for workers and communities impacted by the transition from energy generation from fossil fuels. This included retraining for employees previously working in high-carbon jobs, commitments on labour standards and principles, and community consultations both when closing and opening energy infrastructure.

EDF also scored highly on strategic alignment and employee support, including 2,200 employees redeployed from coal-fired units since 2018 and union representation in internal governance structures. Centrica was commended for its advocacy of safeguards on energy prices, and the provision of grants and support mechanisms for vulnerable customers.

RLAM and FPF have engaged with the UK energy utilities sector to encourage and support a just transition since 2018, on the premise that firms that address inherent social challenges will be more able to achieve their net zero commitments. As part of a broader engagement process, they asked energy utilities to publish just transition strategies “to manage social risk and ensure they continue to deliver good value” for society and investors.

“Without effective plans in place, [a utility may] risk losing skills, its licence to operate and build new green infrastructure at scale, or its ability to source materials from suppliers. This makes the company subject to project delivery delays and other issues that impact its business performance,” the report said, underlining the risks to investors.

In 2020, RLAM and FPF set out expectations for the just transition plans of seven utilities active in the UK energy market: Centrica, E.ON, EDF, National Grid, RWE, SSE and Scottish Power. SSE published its just transition plan in 2020, with Centrica, E.ON, EDF and Scottish Power following in 2021. National Grid pledged to address just transition factors in its Responsible Business Charter, while RWE has not yet published its strategy, stating it had no plans to develop a Just Transition strategy during 2021.

According to the RLAM/FPF report, National Grid has verbally committed to publishing a just transition strategy by Q1 2022, claiming that its role as principal partner to COP26 had caused a delay in publication.

Investor priority

RLAM said just transition was the second-most important engagement priority for clients, based on a consultation conducted last summer. The asset manager said it would continue its partnership with FPF, to monitor the performance of UK energy utilities against their strategies, as well as engaging with US energy utilities in collaboration with the Interfaith Centre of Corporate Responsibility. RLAM will also continue to engage on just transition themes with firms in the banking and social housing sectors.

Colin Baines, investment engagement manager at FPF, said he was pleased that five of the seven firms engaged had published just transition strategies, commending SSE for sharing the value of onshore renewables with local communities and EDF for their efforts on retraining and redeployment workers from closing coal power stations.

“With rising energy bills and a well-resourced campaign targeting the UK’s commitment to net zero, the importance of achieving a just transition cannot be understated if the transition to net zero is to be rapid and resilient,” he said.

“The transition to net zero will undoubtedly involve disruption but also opportunities for workers, communities, customers, and supply chains. A just transition integrates this social dimension into climate strategies, ensuring no one and no community is left behind.”

Both investors are part for the Financing the Just Transition Alliance, a UK-based coalition of 40 banks, investors and other institutions. Last year, the alliance published guidance on how investors and other intermediaries can support and scrutiny of the social aspects of companies’ net zero plans.

 

 

To Top
Newsletter SignupReceive all the latest stories from the ESG Investor editorial team

Subscribe to our free weekly newsletter below and never miss a story.

Share via
Copy link
Powered by Social Snap