Investors across the globe are concerned some electric utilities are not prepared for the transition to a low carbon economy.
They believe there is a lack of transparency in carbon emissions and water use, impacting the ability to calculate their portfolio’s carbon intensity, assess carbon asset risks and evaluate dependency on water resources.
The news comes as more than 270 institutional investors have launched a report specifying what they want from power utilities in order to adapt their business strategies to a 2°C climate change pathway.
The landmark agreement was signed by more than 170 countries last week.
The guide has been developed by the Institutional Investors Group on Climate Change with support from investor networks in North America and Australasia.
It states due to their carbon intensive nature, electric utilities are a particular concern since the liberalisation of many electricity markets as they now represent “hundreds of billions of dollars in market capitalisation”.
In order to face climate risks the report suggests changing technology dynamics with the transition from a centralised system into a more distributed structure with locally installed sources of renewable supply.
The report also suggests changing policy dynamics with regulations that include specific carbon reduction targets, incentives to increase renewable generation, demand side energy savings and carbon pricing, alongside more indirect requirements for disclosure and water management.
Matthias Narr, Engagement Specialist at Robeco and Lead Author said: “This guidance is designed to shape constructive engagement between investors and electric utilities through dialogue on the long term risks and opportunities these companies face from climate change. Investors need to understand whether utility companies are prepared for the changing market dynamics that are likely to arise from the policies and actions put in place to limit global warming.
“Business strategy and capital allocation decisions made now and over the coming years will determine the future sustainability and profitability of electric utilities for decades ahead. Investors therefore have a clear need to establish that capital allocation decisions made by the boards of these utilities give due weight to the low carbon transition in ways that will protect both future sustainability and corporate profitability of the sector.”