While 42 of the companies have a low-carbon transition plan or have made transition-planning commitments, closer examination of these plans suggests there is insufficient action. Companies are failing to back up these commitments with high-level strategic buy-in, comprehensive long-term finance strategies, transparency around projected generation and stress-tested climate scenarios.
The evidence indicates that for 90% of the companies, either ties still exist between executive remuneration and fossil capacity growth, or it is unclear whether these ties have been cut, and these companies have not committed to stop new fossil fuel. Linking remuneration to fossil fuel expansion creates a conflict of interest and could result in weak commitment to the delivery of low-carbon transition plans. Additionally, only one third of the companies have high-level strategic buy-in for the delivery of a comprehensive set of low-carbon transition commitments. The fundamental decisions that will make electric utilities prepared for the low-carbon transition can only be made by those at the top of the organisation.
Robust financial planning must complement transition planning to secure and drive progress. Yet half of the plans reviewed do not discuss financial details for the delivery of the plan. The remaining plans, including those of high-ranking companies like Iberdrola, Ørsted and Vattenfall, only detail financing of short-term actions. The sector is used to long-term forecasting as its assets have long lifetimes, so it is reasonable to assume that the companies assessed are able to provide long-term financing plans. The Task Force on Climate-related Financial Disclosures notes that ‘long-term investors need adequate information on how organisations are preparing for the lower-carbon economy’.
High-quality transition plans should set out the current and projected electricity generation mix of the companies’ portfolios, to demonstrate overall commitment to reduce absolute emissions. However, while 19 companies have set targets to increase low-carbon generating capacity, key finding 4 shows us that considering renewable capacity in isolation is not enough. Just six (Ørsted, CLP, E.ON, Origin Energy, EDP and SSE) have committed to a quantified future electricity mix with fossil fuel phase-out dates.
Transition plans should also be informed by and stress-tested against a range of climate scenarios, to quantify the future impact of investment decisions on the low-carbon economy. Our results show that companies are failing to quantify the financial impact the low-carbon transition will pose to their business. 23 companies do not use any form of scenario analysis. The 27 companies that do use scenario analysis are failing to report the results of their analysis in a meaningful way – with 25 either not reporting results or only reporting the results in qualitative terms. Only AES reports the results of its scenario analysis in quantified, financial terms in its ‘Climate Scenario Report’.