More consistency on policy actions and advocacy, alongside “aggressive efforts” to decarbonise portfolios, are required.
The US’ largest 12 largest electric utility firms have displayed significant inconsistencies between their public climate commitments and their direct and indirect climate lobbying practices, according to benchmark analysis from investor network Ceres.
Despite the sector being ahead of the curve on climate policy advocacy, companies have failed to acknowledge the obstructive nature of the trade associations they are involved with, which has hindered their overall progress on climate-related issues.
“There is a significant misalignment on policy issues,” Steven Rothstein, Managing Director of Ceres Accelerator for Sustainable Capital Markets, told ESG Investor. “We can’t address the climate issues if companies say on the one hand that it is a significant problem, but then are simultaneously opposed to some significant policy areas.”
The benchmark analysis recommended that utility companies consistently lobby in favour of policies promoting net zero emissions, and regularly engage and collaborate with state and federal rulemakers on policy design.
It also suggested the creation of a synchronised climate policy advocacy, using active engagement with industry associations to help them take meaningful steps towards addressing misalignment with trade associations.
“There needs to be aggressive efforts in terms of the decarbonisation of their portfolios, but there also needs to be clear consistency on the policy actions, advocacy and lobbying efforts,” said Rothstein.
All 12 electric utility firms included in the Ceres benchmark have been lobbying for Paris-aligned climate policies, either individually or as part of a coalition, in the last three years. In addition, ten have stated their support for policies and regulations to address climate change impacts. However, three have not publicly demonstrated any support for an international, coordinated approach to the climate crisis.
As part of its Ambition 2030 initiative, Ceres aims to decarbonise the six highest-emitting industries through driving greater climate action from corporates.
Electric power is one of those industries, alongside banking, food, agriculture, oil and gas, steel, and transportation. Together, they contribute to approximately 80% of total US carbon emissions, according to 2019 estimates from the Environmental Protection Agency.
In August, Ceres published another benchmark analysis, this time examining the climate-related risk management, governance, and lobbying practices of 13 of the largest US banks operating. In the next few months, it is due to issue a similar benchmark for transportation.
Investors confront industry lobbying
Asset owners and investors have increased their lobbying activity in recent years, but these efforts largely remain in relatively early stages.
“Investor attention has been increasing,” Rothstein said. “If you look over the last ten years, the number of shareholder resolutions on advocacy and policy has grown significantly.”
A study from NGO InfluenceMap published ahead of COP28 assessed 293 of the Forbes Global 2000 companies, and found that 58% of their climate policy lobbying activities were at odds with their public climate commitments.
Further Research from InfluenceMap early last year also found that US climate policy engagement had risen, but that firms with the strongest engagement rates typically came from high-polluting industries – including utilities firms, two of which led the ranking on engagement.
Last year, the Net Zero Asset Owner Alliance issued a discussion paper that aimed to support asset owners’ engagement with asset managers on climate policy influence, as well as on the stewardship of underlying companies’ lobbying activities.
In 2022, the Church of England Pensions Board initiated the Global Standard on Responsible Climate Lobbying alongside Swedish pension fund AP7 and BNP Paribas Asset Management, with support from Chronos Sustainability.
“We have to reduce our emissions by 50% by 2030, so later is just too late,” Rothstein said. “More needs to be done from [both] a client and a financial stability perspective.”
There will likely be more alignment in the coming period, but it may not be fast enough. “Last year, the world had a 2% reduction in emissions while we had economic development growth, so we need to do more,” he added.