WBA: Less than 10% of electric utilities are taking Paris-Agreement-aligned climate action
Analysis of the decarbonisation ambitions and actions of 50 of the world's largest electric utilities companies has revealed that less than one in ten have fully aligned their business models with the Paris Agreement, despite the fact that the sector must 'enable' the global low-carbon transition.
The analysis, conducted by the World Benchmarking Alliance (WBA), assessed electric utilities from across the globe, with Europe, Eastern Asia and North America accounting for the majority of the cohort.
It found that just four firms – Orsted, Enel, EDP and The AES Corporation – have set climate targets which can be considered “fully” aligned with the Paris Agreement’s well-below 2C trajectory. Moreover, AES Corporation’s latest sustainability reporting revealed that it is currently not on track to meet its targets.
Of particular concern for the WBA is a trend towards continued fossil fuel dependency across the sector. Commitments around portfolio diversification and decarbonisation have emerged at a pace in recent years, the benchmark notes, with 84% of analysed firms investing in large-scale renewable generation projects. Yet 70% of the companies are set to exceed their carbon budgets by 2033 unless they cancel a proportion of their fossil fuel projects currently at the pipeline stage. Of the electricity generated by the cohort in 2018, just 12% came from renewable arrays, while 60% is attributable to fossil fuels.
The WBA attributes this issue to “a lack of ambition in terms of transition planning, milestone creation and accountability”. On the former, while 42 of the 50 firms have a transition plan of some sort, most have made insufficient action on implementation to date. Additionally, the WBA believes that most of the transition plans are not sufficiently ambitious, with many failing to look beyond the short-to-medium-term and just six including time-bound, numerical targets for phasing out fossil fuels.
Further key barriers to transition planning include a lack of dedicated funding (only 21 companies have released details of how they plan to invest to meet their targets); poor high-level engagement (just 18 have executive-level buy-in for decarbonisation plans); and disregard for climate risk analysis and reporting. On the latter, almost half (23) of the companies do not undertake any form of scenario analysis – an activity recommended by the Task Force on Climate-Related Disclosures (TCFD). Just one of the 27 which do – The AES Corporation – report the results in financial terms, making climate risk easily accessible to investors.
“Electric utilities are a make-or-break sector in the transition to low-carbon economies, and this research shows it’s currently off-track,” CDP’s global director of climate change Nikki Bartlett said.
“The good news is the tools, technologies and policies needed [for Paris Agreement alignment] all exist, but they are not being deployed quickly or strategically enough. Unless utilities companies quickly wean their business models off fossil fuels, they will not be able to thrive in the low-carbon economies of tomorrow.”
The news from the WBA comes in the same week that CDP launched a new set of ratings gauging the temperature pathway of investment portfolios, funds and stock indices in order to outline future climate-related risks to investors.
The CDP temperature ratings dataset will offer insight on more than 4,000 global companies, based on the perceived climate risks of their emissions reduction strategies covering all three scopes across the value chain.
This will be welcome news, given that it is not only the electric utilities sector which is lagging on climate risk assessments and disclosures.; a recent survey of more than 500 UK businesses revealed that while three-quarters are concerned about climate-related risks, just one in ten consider measuring and disclosing their climate-related risks a priority. More broadly, a 2020 study from CDSB found that 78% of European corporates are failing to report climate-related risks to the degree expected by their key investors.
edie recently interviewed the WBA’s executive director Gerbrand Haverkamp, who provided insight on supply chain sustainability and climate leadership in the time of Covid-19. You can read that article in full here.