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  • As Huge Network Infrastructure Investments Loom, NextEra, PG&E Offer Lessons on Key Role of ESG

As Huge Network Infrastructure Investments Loom, NextEra, PG&E Offer Lessons on Key Role of ESG

By on September 24, 2021 0


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The following is an article written by Ryan P. Martin, Director at LDR Advisory Partners, and Jan Maceczek, Partner at LDR Advisory Partners

While the law on investment in infrastructure and employment is about to be enacted after a hectic journey thanks to Congress, the prospect of an unprecedented investment in our country’s infrastructure becomes all the more tangible.

While far from the panacea that would be needed to address increasingly critical infrastructure challenges, the bill – in its latest form – allocates more than $ 70 billion to modernize the country’s electricity grid so that ‘it could transport more renewable energy, marking the largest federal investment in power transmission in history. With the resilience of the network in the spotlight after events like this year’s electricity crisis, the spotlight remains on utilities and energy suppliers to invest the federal injection prudently to ensure that an event of this caliber (or worse) does not happen again.

Utilities and their oversight bodies have recognized a general lack of preparation for such adverse weather events and state lawmakers continue to debate how to improve the grid after the February storm nearly caused it to collapse. To regain public trust, we need to take a closer look at the resilience of power generation and the diversification of energy sources, but also a broader trend: environment, social and governance (ESG) is an essential business function for public services.

ESG refers to how a company manages its non-financial risks and maximizes its involvement in each of these three dimensions. It is a holistic approach to creating social good, improving the customer experience, establishing industry leadership and generating shareholder value. Today, customers are more and more targeted, and this desire for social impact is reflected in their purchasing habits. ESG refers to how a company manages its non-financial risks and maximizes its involvement in each of these three dimensions. It is a holistic approach to creating social good, improving the customer experience, establishing industry leadership and generating shareholder value.

Historically, ESG factors have represented a wide range of issues that are not part of traditional financial analysis, but that can impact the bottom line; however, recent trends suggest otherwise. ESG factors are more and more relevant to the main functions of the company. Companies with higher ESG scores prove that in many cases they are better equipped to weather the storm (pun intended). In light of the crisis, it is evident that utilities have a responsibility to invest in ESG activities not only to improve the communities they serve, but also to protect their core business and long-term growth.

Even before the power crisis, the markets had already started to favor companies which has demonstrated its ESG leadership. NextEra Energy and AES Corporation, for example, have acted on high level ESG commitments that are tied to their respective financial strengths. Both companies have outpaced the growth of the utilities sector over the past two years.

With climate change adding new challenges in the form of extreme heat and polar vortex events, severe weather phenomena puts new constraints on utility infrastructure. Once considered ‘nice to have’ for utilities, investing in ESG is a must, and making it a core business improves the customer experience, establishes industry leadership and drives growth for shareholders. Some public service leaders are are already channeling ESG and business innovation investments in renewable energies, smart grids, electric vehicle marketing, community and customer engagement, and workforce development initiatives. Each of these areas represent examples of what is considered essential to create successful and well-received ESG and business innovation strategies.

Conversely, public relations incidents can be devastating for public services and perceived as ESG failures characterized by a company’s lack of preparation for environmental, social and governance events that have a negative impact on its core business. . This has been seen with PG&E in California wildfire crisis and re-formed for utilities unable to sufficiently respond to the electricity crisis. The integration of ESG as a core business function should therefore serve as a framework to prevent such failures in public relations.

The network vulnerabilities exposed by the crisis furthermore gave The Biden administration’s vision for investing in clean infrastructure, namely “better battery-powered transmission and storage systems that would make the system more resilient to extreme weather conditions stimulated by climate change”. By tailoring ESG strategies to the issues most critical to the communities they serve, utilities can create high impact positive changes for communities while protecting their core business interests.

The rapidly changing nature of ESG has resulted in fragmented definitions and measures, challenging the ability to standardize and compare practices. This standardization challenge complicates the ability not only of utilities, but also of business enterprises as a whole, to leverage ESG to satisfy their corporate and community interests. Although several standardized rankings have emerged during this process, each uses different inputs and scales to assess ESG performance.

Without a single standard that can be used to compare companies’ ESG practices, there is no clear understanding of the most credible and effective approach. In this sense, ESG should be seen as a north star for businesses as they strive to improve and improve the communities they serve. From a long-term perspective, the implementation of ESG could take the form of workforce development, preparation for transport electrification or carbon offsetting. Since there is currently no single standard to define, measure and implement ESG, every company has the opportunity to prepare for its own future with this principle of corporate responsibility as a north star. .

In light of a growing energy crisis and the call to improve the country’s grid and infrastructure, utilities have the opportunity to build trust between customers and shareholders while advancing one of the priorities from the country. On the other hand, those who wait to act until there is a clear path for ESG are at best missing out on value-generating opportunities and at worst positioning themselves for disruption. Along the way, we will need to answer the complex questions of how we standardize and measure ESG, as well as how we can tie the financial value of these practices by viewing them as core business practices.

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