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Duke CEO says environmental justice key to clean energy transformation

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Duke CEO says environmental justice key to clean energy transformation

➤ Duke is developing principles to ensure projects are planned in a manner consistent with the need for environmental justice.

➤ CEO outlines plans for a new executive compensation metric tied to climate change.

➤ Duke plans to build more natural gas generation to aid in transition but will continue to test that assumption.

Duke Energy Corp. held its first ESG investor day on Oct. 9 during which it announced several new initiatives, including plans to create a methane emissions target, a climate-focused executive compensation metric and principles for environmental justice.

In an interview with S&P Global Market Intelligence after the event, the company's CEO, president and chair, Lynn Good, provided more details on what those metrics and principles might involve. She also defended the company's decision to build more natural gas generation despite having a net-zero emissions target.

The transcript of key portions of that interview has been edited for length and clarity.

S&P Global Market Intelligence: Today was your first ESG Investor Day. What prompted you to hold this event?

SNL Image

Lynn Good, Duke Energy CEO, president and chair, talks about the company's new strategies at Duke's first ESG investor day on Oct. 9.
Source: Duke Energy livestream event

Lynn Good: ESG is a growing area of importance. The conversation continues around climate change and climate policy, and 2020 has been all about social responsibility, diversity and inclusion, and the ongoing pandemic. Couple that with the importance of corporate governance on an ongoing basis with the way the world is changing, I feel like ESG is increasingly a focus in our industry. And we certainly have an environmental footprint that also makes that conversation of interest.

In conversations with our investors we have heard a desire for more information around ESG. And we thought it would be helpful to put a couple of hours together, where that's the only thing we talk about because it sometimes can get drowned out with all of the other priorities that a corporation deals with and talks about. We thought the event would not only be helpful in getting our story out, but it would be of great interest to investors who are increasingly focused on ESG.

In the event today, you announced Duke is developing principles for environmental justice. What is your timeline for developing those principles and how do you plan on disclosing and applying them?

Just as you have guiding principles around carbon reduction or how you might approach diversity and inclusion or things like this, environmental justice is a bit under development.

As we think about these guiding principles, we ask if we can we take some of the lessons about the need for connection with the community and to be sensitive to how a project might affect residents closest to a facility and be more proactive on stakeholder engagement, involve them in issues that may be of particular concern to them? Can we make sure that the environmental footprint is as low as it can possibly be in a more targeted, proactive, intentional way?

HEAR MORE: To hear what Good had to say about how the company is handling social issues such as diversity and avoiding customer shutoffs amid COVID-19, listen to the full interview on the S&P Global ESG Insider podcast on Apple podcasts and Spotify.

And so we're trying to develop some guiding principles that we could use as a playbook or an outreach method that would allow us to have those conversations early before we begin doing any investment or construction of significance.

Also, we've been talking with our states, we've been talking with the environmental quality organizations, learning from them on how they're thinking about it. I would say, probably over the next six months or so, we'll try to get something down on paper that we can begin socializing, talking more about it and gathering inputs.

Democratic presidential candidate Joe Biden and his running mate, Sen. Kamala Harris, have made environmental justice one of their key campaign pledges. So I can imagine that would be sort of a strategic benefit to you as well if you're sort of ahead of the ball on that if they do get elected.

Regarding Duke's plan to build out renewables and achieve net-zero emissions, when you think of the magnitude of the transformation we're talking about, it's going to have an impact on communities. The transformation will require building things, transmission lines and solar farms. There's no resource that we build that doesn't have some feedback from the community. And so if we're going to tackle this transformation, we've got to do this right. And we have to find ways to reach common ground. Otherwise, the transformation will get bogged down in permitting and siting and things of this nature.

So that's what comes to my mind as we're talking about this notion of how can we do better with the communities. To transform in the way we're talking about, it's going to be essential, frankly, to get that right and try to find ways to reach common ground.

In what ways can you include communities that historically may not have had the resources to engage with Duke on development plans?

Whether they have resources to engage with us or not, we can still engage with them. We can have community meetings. We can go to houses of faith and have meetings. We can engage in community centers and see where that community is and how we might work together. I think the tools are there. We just have to be proactive and intentional in pursuing them.

Duke's board plans to add a new executive compensation metric tied to climate change next year. Can you give me some insights into what that might entail?

We've been looking at this for a couple of years, what's the right way to do it. It is less about a quantified goal and more about if we are progressing in our strategic plan? We are starting with this metric to demonstrate progress that you're on the path, that you're making the investments, you're advocating in the right way, you're addressing the issue holistically.

And then over time, there may be quantifiable metrics we can come up with, but they may need to be achieved over a five-year period, for example, as opposed to annually because it may not be a stair-step annual progression. We're starting to see some of these goals around our industry and others, but everyone's wrestling with what's the right way to do it and what's the right way to measure it.

Duke has proposed to build more natural-gas fired generation but it also has a net-zero emissions target. Why does Duke think more gas generation is needed?

The headline for us is we are aggressively moving to reduce carbon. But we have to be able to do that in a way that reliably provides power and that is affordable to our customers, including retirees, low-income communities, more affluent communities, and manufacturers that are competing with overseas competitors.

Geographically, we are situated in the Southeast Florida and the Carolinas and in the Midwest — in Indiana, Ohio and Kentucky. Every geography has a different renewable resource available to it at different prices and different capabilities.

The Southeast lends itself very well to solar. And over time, we'll be able to add more wind, but it's probably offshore wind, which is more expensive today. Also, battery storage only has the ability to move power for about a four-hour period.

So for us, given where technology is, we see a need to use natural gas to be that dispatchable resource to meet customers' needs, at least probably in the medium term. We ran our modeling, constraining the life of the assets to maybe 20-25 years and the modeling still believes natural gas fits into our system. But we will challenge that every step of the way. We'll continue to update as technologies change.