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The Edison Electric Institute, or EEI, an association of investor-owned electric utilities, is slated to meet with big investors in New York City on March 14 to assess the results of a pilot the association undertook in late 2017 of its new sustainability template on environmental, social and governance issues. Investors use ESG criteria to screen whether companies are both aware of the risks and maneuvering to address them.
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In a recent interview, Richard McMahon, vice president of energy supply and finance for EEI and lead of its ESG initiative, answered questions about the pilot program and next steps. The transcript of that interview has been edited for length and clarity.
S&P Global Market Intelligence: Why did EEI and its members create the ESG template?
Richard McMahon:
This [pilot] program was done in conjunction with investors and other stakeholders in the ESG sustainability space, so I think that really makes it robust. ... We have customers that are interested in this. We have investors that are interested in this. And our own companies feel like we're leaders in this space.
Given that the template largely involves consolidating information, what new value can investors and activist groups glean from the documents?
The program really provides the opportunity to not just talk about where the company is at this point in time, but also about where things are going. Our companies are completely committed to sustainability and have been doing things for decades to reduce, avoid and sequester emissions. And they have made great strides in the evolution of the generation fleet. Certainly, we're leaders in the deployment of wind, solar and, lately, quite a bit of natural gas. When you look at ESG, obviously for our space, the "E" is an important thing, but the "S" and "G" are also areas where utilities have a great story to tell, and it's being under-reported.
[Investors] want to know utilities … and their management and boards are looking on a forward basis at issues around climate and social issues like diversity. And this ESG pilot provides that template for letting investors know what's on the mind of management.
You don't want to see a proxy initiative come up about doing a 2-degree climate [warming] analysis. When you talk to the activists endorsing those proxy initiatives, a lot of the discussion is about, "Well, we just want to make sure management is looking at this going forward and considering this." So that's where this really helps to bridge that gap ... just to put it out there that, "Yeah, we are looking at this stuff."
To what extent does compiling all the ESG information in one place benefit utilities internally?
It has provided for a more holistic look on ESG. This process helps the industry focus in on this core value. ... And it helps people across the enterprise really look at that value, maybe more than they have in the past when they were cobbling together ... reports. This initiative is endorsed by our board and CEOs, but there's a whole cross-section of folks at the utility that are helping and participating in it.
Did EEI consider having companies file the reports with the Securities and Exchange Commission instead of posting them on their corporate websites? If so, why did the group and its members decide not to do so?
We did have a lot of discussion around that. ... Our view was that having it outside the SEC documents ... provides for much more latitude and flexibility in terms of giving investors what they want in a focused way.
Having it outside the SEC documents also allows us to tell the forward-looking story that investors are very interested in. … Frankly, if you had to put this into a standard format across all industries in an SEC document, ... that forward information would probably not be there in as robust a way as it's going to be in our template.
This is important information in a lot of cases, but it may or may not be material for financial reporting purposes. So we believe that the rules are clear: Once things become material, companies will put them into the financial statements where they belong. But until then, this allows the investors the opportunity to define the information they're looking for, presented in a comprehensive way.
People have differences of opinion on it. I know others out there think everything is material and everything should go in [the financial statements], but I don't think that is the case. We've had great feedback and input from our investors, so we feel this is the right approach and is hitting the mark for them.
What is next for the pilot template program? Are any changes on the horizon?
The plan right now is to officially roll out [the template using 2017 data] in the second or third quarter of this year. We anticipate most of our members are going to be participating. But we're going to do this [March 14] meeting with investors to get their input to make sure we're on track or to make adjustments.
We've also reached out to a lot of the advocates and activists in the ESG space, [including CERES and the Task Force on Climate-related Financial Disclosures], to get their input and guidance. We want them to look at our template and kick the tires of it and, ideally, to show our template is meeting the informational need the TCFD helped to define.
There may be other issues down the road we need to add. We have already started looking at natural gas issues and the sustainability of the natural gas supply chain — that is something that we'll probably be working on this coming year [with investors, utilities and upstream gas companies].
- Companies that participated in the initial pilot template roll out include American Electric Power Co. Inc., Alliant Energy Corp., Duke Energy Corp., Edison International, Eversource Energy, Great Plains Energy Inc., NiSource Inc., Public Service Enterprise Group Inc., WEC Energy Group Inc., Westar Energy Inc. and UNS Energy Corp.

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