The state of transition in the coal mining, electricity and oil and gas sectors: TPI's latest assessment - July 2018

 
The state of transition in the coal mining, electricity and oil and gas sectors: TPI's latest assessment - July 2018
The state of transition in
the coal mining, electricity
and oil and gas sectors:
TPI’s latest assessment
July 2018

Simon Dietz, Carlota Garcia-Manas,
Dan Gardiner, William Irwin,
Augustin Lion, Michal Nachmany,
Bruno Rauis, Rory Sullivan
Disclaimer

1. All information contained in this report and on the TPI website is derived from
publicly available sources and is for general information use only. Information can
change without notice and The Transition Pathway Initiative does not guarantee
the accuracy of information in this report or on the TPI website, including
information provided by third parties, at any particular time.
2. Neither this report nor the TPI website provides investment advice and nothing
in the report or on the site should be construed as being personalised investment
advice for your particular circumstances. Neither this report nor the TPI website
takes account of individual investment objectives or the financial position or
specific needs of individual users. You must not rely on this report or the TPI
website to make a financial or investment decision. Before making any financial
or investment decisions, we recommend you consult a financial planner to take
into account your personal investment objectives, financial situation and
individual needs.
3. This report and the TPI website contain information derived from publicly
available third party websites. It is the responsibility of these respective third
parties to ensure this information is reliable and accurate. The Transition Pathway
Initiative does not warrant or represent that the data or other information
provided in this report or on the TPI website is accurate, complete or up-to-date,
and make no warranties and representations as to the quality or availability of
this data or other information.
4. The Transition Pathway Initiative is not obliged to update or keep up-to-date
the information that is made available in this report or on its website.
5. If you are a company referenced in this report or on the TPI website and would
like further information about the methodology used in our publications, or have
any concerns about published information, then please contact us. An overview of
the methodology used is available on our website.
6. Please read the Terms and Conditions which apply to use of the website.

2
Contents
Foreword                                                                                           4
Executive Summary                                                                                  5
Management Quality                                                                                  5
Carbon Performance                                                                                  7

1. Introduction                                                                                    9
About the Transition Pathway Initiative                                                             9
This report                                                                                         9
Brief overview of methodology                                                                       9

2. Overview of results                                                                            12
Management Quality in coal mining, electricity and oil & gas                                       12
Indicator by indicator                                                                             15
Carbon Performance of electricity utilities                                                        16
Carbon Performance in coal mining, and oil & gas                                                   16

3. Management Quality of coal mining companies                                                    18
Overall results                                                                                    18
Trends in company Management Quality                                                               19
Indicator by indicator                                                                             20

4. Management Quality and Carbon Performance of electric utilities                                21
Overall results for Management Quality                                                             21
Trends in company Management Quality                                                               23
Indicator by indicator                                                                             23
Global Carbon Performance                                                                          25
Regional Carbon Performance                                                                        26

5. Management Quality of oil and gas producers                                                    28
Overall results                                                                                    29
Trends in Management Quality                                                                       29
Indicator by indicator                                                                             30

Appendix 1. List of companies covered in this report                                              31
Appendix 2. TPI Management Quality indicators                                                     35
Appendix 3. Carbon Performance assessment                                                         38
Bibliography                                                                                      40

RESEARCH FUNDING PARTNERS:

We would like to thank our Research Funding Partners, Aberdeen Standard Investments, BNP Paribas
Asset Management and Legal & General Investment Management, for their ongoing support to the
Transition Pathway Initiative and their enabling the research behind this report and its publication.

                                                                                                    3
Foreword
By Adam Matthews and Faith Ward, co-chairs of the TPI

TPI – The Asset Owner Carbon                         The findings of this report show some very
Performance Assessment Tool                          positive messages – for example over half of the
The Transition Pathway Initiative was established    company targets in the electricity generation
to empower and enable asset owners to add            sector are ambitious enough to align with the
their voice to debates on climate change and the     Paris Pledges (NDCs) in 2020, and most of them
financing of the transition to a low-carbon          are even ambitious enough to align with a Below
economy.                                             2 Degrees scenario. There has also been
                                                     demonstrable improvement in management
Although the toolkit was designed by asset
                                                     quality by companies previously assessed by TPI
owners for asset owners, since TPI’s launch in
                                                     over a year ago.
early 2017, the tool has also been used by asset
managers, sell-side analysts, investment banks,      Alongside the publication of this report TPI is also
and research and proxy service providers –           outlining the feedback we have received to the
demonstrating its versatility and effectiveness.     Discussion Paper on Oil and Gas Carbon
TPI is now supported by asset owners and asset       Performance. It is clear that TPI has outlined a
managers representing £7/$9.3 trillion in assets     methodology that enables asset owners to track
under management.                                    future carbon performance in this sector based
                                                     on public disclosure. This is a key development
We believe the strength of the tool comes from
                                                     that has the potential to considerably shape our
its clarity and academic rigour – making it
                                                     understanding of transition in this important
decision-useful! The clarity provides time poor,
                                                     sector and our engagement with it.
overloaded asset owners with standard,
comparable metrics across the 183 companies          Both reports capture the significant progress
and seven sectors covered by TPI. The academic       that is being made by many companies in the
rigour is driven by the world-leading Grantham       most challenging sectors of our economy. They
Research Institute at the London School of           also demonstrate that there is much to be done
Economics and Political Science, and the             by both companies and policy makers if our
practical data solutions provided by FTSE Russell;   ambitions of ensuring that these major sectors
together they provide the information asset          of the economy align with, or exceed, the goals
owners need in a useable and impactful way.          of the Paris Agreement.

This report introduces three new indicators that     We will continue to increase our coverage of
brings the TPI methodology into alignment with       those companies, public and private, that make
the recommendations from the Taskforce on            the most significant contribution to global
Climate-related Financial Disclosures (TCFD),        greenhouse gas emissions. TPI will provide an
providing the macro-framework based on               accountability mechanism for these companies,
company public disclosure which enables              and for investors looking to assess the
investors to assess which companies are taking       effectiveness of their engagement. We will
action (management quality); and which are           continue to build our asset owner constituency
aligning their business model (carbon                and encourage them to increase the use of TPI
performance) to meet the ambitions of the 2015       across the investment industry.
Paris Agreement.

4
Executive Summary

This new report by the Transition Pathway           http://www.transitionpathwayinitiative.org. The
Initiative (TPI) assesses the carbon management     online tool now contains 183 company
and performance of 105 of the world’s largest       assessments across seven sectors. The other four
and highest-emitting public companies in three      sectors assessed to date are automobile
sectors at the heart of climate change: coal        manufacturing, cement, paper and steel.
mining, electricity, and oil and gas. It updates
assessments published by TPI in 2017, enabling us
                                                    Management Quality
to track companies’ progress. We extend             TPI’s Management Quality framework is based
coverage in the electricity sector from 20 to 41    on 17 indicators, each of which tests whether a
companies and in the oil and gas sector from 20     company has implemented a particular carbon
to 45 companies. We also cover 19 of the world’s    management practice (Yes/No), for example
largest publicly listed mining companies that       formalising a policy commitment to action on
were engaged in mining coal in 2017/18.             climate change, setting emissions targets and
TPI’s assessment is divided into two parts:         undertaking climate scenario planning. These 17
                                                    indicators are used to map companies on to the
1. Management Quality covers companies’
                                                    following five levels:
management/governance of greenhouse gas
emissions and the risks and opportunities arising      Level 0 – Unaware of (or Not Acknowledging)
from the low-carbon transition.                         Climate Change as a Business Issue.
                                                       Level 1 – Acknowledging Climate Change as a
2. Carbon Performance assessment involves
                                                        Business Issue: the company acknowledges
quantitative benchmarking of companies’
                                                        that climate change presents business risks
emissions pathways against the international            and/or opportunities, and that the company
targets and national pledges made as part of the        has a responsibility to manage its greenhouse
2015 UN Paris Agreement, for example limiting           gas emissions. This is the point where
global warming to below 2°C.                            companies adopt a climate change policy.
We assess Management Quality and Carbon                Level 2 – Building Capacity: the company
Performance separately, because a large body of         develops its basic capacity, its management
research shows the relationship between them is         systems and processes, and starts to report
by no means clear cut. Management Quality               on practice and performance.
assessment focuses on processes, while Carbon          Level 3 – Integrating into Operational
Performance focuses on outcomes. Together               Decision Making: the company improves its
they are intended to provide a holistic view of         operational practices, assigns senior
companies’ progress on the low-carbon                   management or board responsibility for
transition. The framework is aligned with               climate change and provides comprehensive
                                                        disclosures on its carbon practices and
recommendations of the FSB Taskforce on
                                                        performance.
Climate-related Financial Disclosures (TCFD),
                                                       Level 4 – Strategic Assessment: the company
tracking companies in relation to TCFD’s four
                                                        develops a more strategic and holistic
recommendation areas: governance, strategy,
                                                        understanding of risks and opportunities
risk management, and metrics and targets.
                                                        related to the low-carbon transition and
TPI publishes the results of its analysis through       integrates this into its business strategy
an open access online tool, available at                decisions.

                                                                                                      5
Figure ES1. Management quality of public companies in coal mining, electricity, and oil and gas.
Headline numbers (top panel) and shares by sector (bottom panel)

                            Level 0         Level 1             Level 2               Level 3            Level 4
                            Unaware         Awareness           Building              Integrating into   Strategic
                                                                capacity              operational        assessment
                                                                                      decision making

                                                                                                         29 companies

                                                                                      24 companies       6 coal mining
                                                                                                         companies

                                                                33 companies          2 coal mining      15 electricity
                                                                                      companies          utilities

                                            18 companies        2 coal mining         12 electricity     8 O&G
                                                                companies             utilities          producers

                            1 company       8 coal mining       10 electricity        10 O&G
                                            companies           utilities             producers

                            1 coal mining   4 electricity       21 O&G
                            company         utilities           producers

                                            6 O&G producers

                       35

                       30

                       25
 Number of companies

                       20
                                                                                                                   Electricity utilities
                       15                                                                                          Oil and gas
                                                                                                                   Coal mining
                       10

                       5

                       0
                                      0         1              2                  3               4
                                                              Level

The average company assessed in this report is                              setting an emissions reduction target and
just transitioning from Level 2 to 3 (Figure ES1),                          disclosing operational emissions.
in other words from building capacity to manage                             Roughly 30% of companies have gone much
climate change, to integrating the issue into                               further than this, reaching Level 4, and six
operational decision making. Such a company                                 companies satisfy all the management
has explicitly recognised climate change as a                               indicators; we call these 4* companies (Table
business risk/opportunity and made a policy                                 ES1).
commitment to action, and is at the point of

                                                                                                                                           6
Table ES1. Four star companies on TPI's Management Quality framework
 4* Company                                 Sector
 AGL Energy                                 Electricity
 Anglo American                             Coal mining (general mining)
 BHP Billiton                               Coal mining (general mining)
 Equinor (formerly Statoil)                 Oil and gas
 National Grid                              Electricity
 Repsol                                     Oil and gas

Electricity utilities score highest on Management    Carbon Performance
Quality on average, followed by oil and gas
producers, with coal mining companies scoring        TPI’s Carbon Performance assessment translates
lowest. Many pure play coal mining companies         emissions targets made at the international level
remain stuck on Level 1, mainly because they do      under the 2015 UN Paris Agreement into
not yet have a policy commitment to action on        benchmarks, against which the performance of
climate change. By contrast, all the general         individual companies can be compared. We take
mining companies included in this report are on      a take sector-by-sector approach, recognising
Levels 3 or 4. Many oil and gas producers are on     that different sectors of the economy face
Level 2, because they are yet to set emissions       different challenges arising from the low-carbon
reduction targets.                                   transition, including where emissions are
All three sectors have improved since 2017, with     concentrated in the value chain and how costly it
                                                     is to reduce emissions.
the largest average improvement in oil and gas.
Of the 54 companies that were also assessed last     In this report we assess the Carbon Performance
year, 17 have moved up and 3 have moved down.        of 37 electricity utilities that have a significant
                                                     electricity generation business. The results
Companies that have moved up have done so by
                                                     demonstrate the continuing shortfall of
implementing new carbon management                   emissions targets that TPI can use to assess the
practices, in particular explicitly recognising      Carbon Performance of electricity utilities
climate change as a business risk/opportunity,       (Figure ES2), even if targets are more prevalent
and setting emissions reduction targets. There is    in the electricity sector than they are in most
more progress at the lower levels.                   other sectors TPI has assessed to date.

                                                                                                           7
Figure ES2. Alignment of electricity utilities’ emissions intensity with international emissions
targets in selected years

                                 2020                                                   2030

                                                                                    5
                                          11
                      13

                                                                            6
                                                                                                  18
                        1
                            1
                                     11

                                                                                8
      No targets   Not aligned    Paris Pledges   2C   Below 2C

More encouraging is the finding that over half of                 In March 2018 we published a discussion paper,
the company targets that are in place in the                      which sets out a proposal for how Carbon
electricity sector are ambitious enough to align                  Performance could be assessed in the oil and gas
with the Paris Pledges (NDCs) in 2020, and most                   sector in future.[1] Its central premise is that oil
of them are even ambitious enough to align with                   and gas producers are engaged in primary
a Below 2 Degrees scenario (Figure ES2). In 2030,                 energy supply and therefore that the appropriate
still more than half of company targets are                       measure of carbon performance in the sector is
aligned with the Paris Pledges, but only five                     the lifetime carbon intensity of primary energy
company targets are aligned with Below 2                          supply. IEA projects that in a 2 Degrees scenario
Degrees: E.ON, EDF, Enel, Iberdrola and SSE.                      this carbon intensity will fall by two thirds
This implies that companies’ targets are often                    between now and 2050.
ambitious, but by 2030 they are struggling to                     In conclusion, TPI’s latest assessment
keep pace with the decarbonisation necessary to                   demonstrates measurable progress over the past
deliver the Paris Agreement’s overall objective.                  18 months, particularly in corporate carbon
We found a similar pattern last year.                             management. Many companies have now
TPI does not currently assess the Carbon                          implemented a wide range of carbon
Performance of companies in the coal mining                       management practices and have a strategic
and oil and gas sectors. This is due to a lack of                 approach to climate change. Increasing numbers
company emissions targets in these two sectors                    of electricity utilities are making the transition to
that encompass downstream emissions from use                      renewable energy.
of sold products, i.e. burning coal, oil and gas for              However, most companies still do not take a
energy in buildings, electricity, industry and                    strategic approach to climate change, and most
transport. The vast majority of lifecycle                         electricity utilities either do not have
emissions in these sectors stem from such use of                  quantitative, long-term emissions targets, or
companies’ sold products.                                         their targets do not keep pace with what the
                                                                  Paris Agreement requires. Therefore there
                                                                  remains much to be done.

8
1. Introduction
About the Transition Pathway                          It updates assessments published by TPI in 2017,
                                                      enabling us to track companies’ progress, and
Initiative                                            extends coverage in the electricity sector from 20
                                                      to 41 companies and in the oil and gas sector
The Transition Pathway Initiative (TPI) is a global
                                                      from 20 to 45 companies. We also cover 19 of the
initiative led by asset owners and supported by
                                                      world’s largest publicly listed mining companies
asset managers. Established in January 2017, TPI
                                                      that were engaged in mining coal in 2017/18.
investors now collectively represent over
UK£7/US$9.3 trillion of assets under                  All 105 companies are assessed on Management
management.1                                          Quality, while we assess the Carbon Performance
                                                      of 37 electricity utilities with a significant
On an annual basis, TPI assesses how companies
                                                      electricity generation business.
are preparing for the transition to a low-carbon
economy in terms of their:                            In each sector, TPI looks at the largest public
                                                      companies globally, on the basis of market
     Management Quality – all companies are          capitalisation. These companies usually
      assessed on the quality of their                constitute the largest holdings in investor
      governance/management of greenhouse gas         portfolios. We also cover a number of smaller
      emissions and of risks and opportunities        companies that have been selected for
      related to the low-carbon transition.           engagement by the Climate Action 100+ Initiative
     Carbon Performance – in selected sectors, TPI   on the basis of their aggregate, lifecycle
      quantitatively benchmarks companies’            greenhouse gas emissions.2 These companies are
      carbon emissions against the international      systemically important for climate change. Full
      targets and national pledges made as part of    details of the companies assessed can be found
                                                      in Appendix 1.
      the 2015 UN Paris Agreement.

TPI publishes the results of its analysis through
                                                      Brief overview of methodology
an open access online tool hosted by the              TPI assesses companies on their Management
Grantham Research Institute on Climate Change
                                                      Quality and Carbon Performance, two quite
and the Environment at the London School of
Economics (LSE):                                      different elements of how companies are
www.transitionpathwayinitiative.org.                  approaching the low-carbon transition. The
                                                      former focuses on inputs and processes, the
Investors are encouraged to use the data,
indicators and online tool to inform their            latter on outcomes. Together these assessments
investment research, decision making,                 are intended to provide a holistic view of
engagement with companies, proxy voting and           companies’ progress.
dialogue with fund managers and policy makers,
                                                      Management Quality
bearing in mind the Disclaimer that can be found
in the inside front cover. Further details of how     TPI’s Management Quality framework is based
investors can use TPI assessments can be found        on 17 indicators, each of which tests whether a
on our website at www.lse.ac.uk/Grantham              company has implemented a particular carbon
Institute/tpi/about/how-investors-can-use-tpi/.       management practice (Yes/No), for example
                                                      formalising a policy commitment to action on
This report                                           climate change, disclosing its emissions, setting
This latest TPI report assesses the Management        emissions targets and undertaking climate
Quality and Carbon Performance of 105 of the          scenario planning.
world’s largest and highest-emitting public           These 17 indicators, which are described in detail
companies in three sectors of critical importance     in Appendix 2, are then used to map companies
to climate change: coal mining, electricity and       on to the following five levels:
oil and gas.

1
    As of 5 June 2018.
2
    http://www.climateaction100.org/
                                                                                                          9
     Level 0 – Unaware of (or Not Acknowledging)           Carbon Performance
      Climate Change as a Business Issue.
     Level 1 – Acknowledging Climate Change as a           TPI’s Carbon Performance assessment translates
      Business Issue: the company acknowledges              emissions targets made at the international level
                                                            under the 2015 UN Paris Agreement into
      that climate change presents business risks
                                                            benchmarks, against which the performance of
      and/or opportunities, and that the company
                                                            individual companies can be compared. We take
      has a responsibility to manage its greenhouse         a take sector-by-sector approach, recognising
      gas emissions. This is the point where                that different sectors of the economy face
      companies adopt a climate change policy.              different challenges arising from the low-carbon
     Level 2 – Building Capacity: the company              transition, including where emissions are
      develops its basic capacity, its management           concentrated in the value chain and how costly it
      systems and processes, and starts to report           is to reduce emissions.3
      on practice and performance.                          In this report we benchmark the emissions
     Level 3 – Integrating into Operational Decision       intensity of electricity generation in the
      Making: the company improves its                      electricity sector against three scenarios that are
      operational practices, assigns senior                 derived from modelling by the International
      management or board responsibility for                Energy Agency (IEA):
      climate change and provides comprehensive                Paris Pledges, consistent with the emissions
      disclosures on its carbon practices and                   reductions pledged by countries as part of the
      performance.                                              Paris Agreement in the form of Nationally
     Level 4 – Strategic Assessment: the company               Determined Contributions or NDCs.
      develops a more strategic and holistic                   2 Degrees, consistent with the overall aim of
      understanding of risks and opportunities                  the Paris Agreement to hold “the increase in
      related to the low-carbon transition and                  the global average temperature to well below
      integrates this into its business strategy                2°C above pre-industrial levels and to pursue
      decisions.                                                efforts to limit the temperature increase to
                                                                1.5°C above pre-industrial levels”, albeit at
With the exception of Level 0, companies need to
                                                                the low end of the range of ambition.
be assessed as Yes on all of the questions
pertaining to a level, before they can advance to              Below 2 Degrees, consistent with a more
the next level. The data underpinning the                       ambitious interpretation of the Paris
indicators are provided by FTSE Russell. Box 1                  Agreement’s overall aim.
summarises revisions to the indicator set for this
                                                            Appendix 3 describes the methodology in more
and future reports.
                                                            detail.

3
    The approach is similar to that employed by the Science Based Targets Initiative.
10
Box 1. Revisions to TPI’s Management Quality framework for 2018, and correspondence with
TCFD
TPI’s Management Quality framework has been revised for this report. Based on feedback from
TPI’s Steering Group and its Technical Advisory Group, and enabled by new ESG data collected by
FTSE Russell, five new questions have been added:
      Does the company have a process to manage climate-related risks? (Level 3)
      Does the company disclose materially important Scope 3 emissions? (Level 3, for selected
       sectors only)
      Does the company incorporate climate change risks and opportunities in their strategy?
       (Level 4)
      Does the company undertake climate scenario planning? (Level 4)
      Does the company disclose an internal price of carbon? (Level 4)
Together these new questions help bring TPI’s Management Quality framework into full alignment
with the recommendations of the FSB Taskforce on Climate-related Financial Disclosures (TCFD).
TCFD’s recommendations are in four areas: governance, strategy, risk management, and metrics
and targets. The revised Management Quality framework includes multiple indicators in each of
these four areas, while our separate Carbon Performance assessment is focused on metrics and
targets specifically.
The new question on materially important Scope 3 emissions enables TPI to better differentiate
companies in terms of the comprehensiveness and quality of their Scope 3 disclosures, where
these command a large share of companies’ lifecycle greenhouse gas emissions.
We have deleted two questions from the 2017 framework. They are:
      Has the company reduced its total Scope 1 and 2 greenhouse gas emissions over the past 3
       years? Deleting this question enables a cleaner separation of management practices from
       emissions performance.
      Does the company provide information on business costs associated with climate change?
       This question has been replaced with the question about internal carbon pricing.
Two minor modifications have also been made to existing questions:
      Question 2 has changed from “Does the company explicitly recognise climate change as a
       significant issue for the business?” to “Does the company explicitly recognise climate
       change as a relevant risk and/or opportunity for the business?”, reflecting a change in how
       FTSE Russell captures the underlying data, intended to bring the framework more closely
       into line with TCFD.
      Question 4 now relates to greenhouse gas emissions reductions specifically (rather than
       emissions and/or energy use) and Questions 7 and 13 now relate to emissions reductions
       across Scopes 1, 2 and/or 3, again reflecting changes in how FTSE Russell captures the
       underlying data.
Further details, including a mapping of the framework to the TCFD recommendations, can be
found in our latest Methodology and Indicators Report.[2]

                                                                                                     11
2. Overview of results

Management Quality in coal                                                  sectors together, while drawing out the key
                                                                            differences between them. Nineteen mining
mining, electricity, and oil & gas                                          companies are assessed, as well as 41 electricity
                                                                            utilities and 45 oil and gas producers. Figure 1
This section provides an overview of the results of
                                                                            shows the number of companies on each
our Management Quality assessment, looking at
                                                                            Management Quality level.
the coal mining, electricity, and oil and gas

Figure 1. Management quality of public companies in coal mining, electricity, and oil and gas.
Headline numbers (top panel) and shares by sector (bottom panel)
                            Level 0         Level 1             Level 2               Level 3            Level 4
                            Unaware         Awareness           Building              Integrating into   Strategic
                                                                capacity              operational        assessment
                                                                                      decision making

                                                                                                         29 companies

                                                                                      24 companies       6 coal mining
                                                                                                         companies

                                                                33 companies          2 coal mining      15 electricity
                                                                                      companies          utilities

                                            18 companies        2 coal mining         12 electricity     8 O&G
                                                                companies             utilities          producers

                            1 company       8 coal mining       10 electricity        10 O&G
                                            companies           utilities             producers

                            1 coal mining   4 electricity       21 O&G
                            company         utilities           producers

                                            6 O&G producers

                       35

                       30
 Number of companies

                       25

                       20
                                                                                                                   Electricity utilities
                       15                                                                                          Oil and gas
                                                                                                                   Coal mining
                       10

                       5

                       0
                                      0         1              2                  3               4
                                                              Level

                                                                                                                                           12
Only one company is on Level 0 – Unaware of          they are material, specifically disclose emissions
(or not Acknowledging) Climate Change as a           from use of sold products (coal mining, and oil
Business Issue. This is the coal mining company      and gas, only); have operational emissions data
Shougang Fushan Resources, listed in Hong            verified; support domestic and international
Kong.                                                efforts to mitigate climate change; introduce a
Eighteen (18) companies are on Level 1 –             process to manage climate-related risks.
Acknowledging Climate Change as a Business           Twenty-nine (29) companies have made it to
Issue. Most companies on this level have a           Level 4 – Strategic Assessment. These
climate change policy in place, but do not           companies satisfy all TPI’s indicators on Levels 0-
explicitly recognise climate change as a relevant    3 and are undertaking some, but usually not all,
risk and/or opportunity for the business. A few      of the following: setting quantitative, long-term
companies do the opposite, alluding to the           emissions targets; incorporating ESG issues into
materiality of climate change, without having a      executive remuneration; incorporating climate
policy commitment to action.                         change risks and opportunities in company
Thirty-three (33) companies are on Level 2 –         strategy; undertaking climate scenario planning;
Building Capacity. Companies on this level have      disclosing their internal carbon price.
a climate change policy in place and have            Six companies satisfy all of the TPI indicators for
explicitly recognised climate change as a            their sector. We refer to these as four star
relevant risk/opportunity. But either they do not    companies (Table 1).
disclose their operational greenhouse gas            At the sector level, electricity utilities fare best,
emissions (i.e. Scope 1 and 2), and/or they have     with relatively more companies on Levels 3 and 4
not set any targets to reduce their emissions in     (see Figure 1) and an average level score of 2.9,
absolute or relative terms (even unquantified        compared with 2.4 in oil and gas and just 2.2 in
targets). More companies are on Level 2 than         coal mining.
any other level; 31% of all 105 companies.
                                                     Many pure play coal mining companies remain
Twenty-four (24) companies are on Level 3 –          stuck on Level 1, mainly because they do not yet
Integrating into Operational Decision Making.        have a policy commitment to action on climate
These companies disclose their operational           change. By contrast, all the general mining
emissions and have set emissions reduction           companies included in this report are on Levels 3
targets. Most have gone beyond this to               or 4. Many oil and gas producers are on Level 2,
implement some, but not all, of the following        because they are yet to set emissions reduction
carbon management practices: assign board            targets. Most electricity utilities are on Levels 3
responsibility for climate change; set               and 4.
quantitative emissions targets; disclose some
value-chain (i.e. Scope 3) emissions and, where

Table 1. Four star companies on TPI's Management Quality framework
 4* Company                                 Sector
 AGL Energy                                 Electricity
 Anglo American                             Coal mining (general mining)
 BHP Billiton                               Coal mining (general mining)
 Equinor (formerly Statoil)                 Oil and gas
 National Grid                              Electricity
 Repsol                                     Oil and gas

                                                                                                        13
At the sector level, electricity utilities fare best,     Trends in Management Quality
with relatively more companies on Levels 3 and 4
(see Figure 1) and an average level score of 2.9,         Overall, we have seen an improvement in
compared with 2.4 in oil and gas and just 2.2 in          companies’ Management Quality since TPI’s first
                                                          analysis of these three sectors in 2017.4
coal mining.
                                                          All three sectors have improved on their average
Many pure play coal mining companies remain               level scores in 2017, with the largest
stuck on Level 1, mainly because they do not yet          improvement in oil and gas, up from 2.0 to 2.4
have a policy commitment to action on climate             primarily due to an improvement in Management
change. By contrast, all the general mining               Quality among the largest companies.
companies included in this report are on Levels 3         Figure 2 lists companies that have moved up or
or 4. Many oil and gas producers are on Level 2,          down the Management Quality staircase since
because they are yet to set emissions reduction           first being assessed by TPI in 2017. Of the 54
targets. Most electricity utilities are on Levels 3       companies assessed in 2017 and 2018, 20 have
and 4.                                                    moved level and 17 of these have progressed to a
                                                          higher level.

Figure 2. Companies that have moved up or down levels since the TPI 2017 assessment

                                                                 Level
                                   0             1                 2                3                 4
                  Adaro Energy
           Anadarko Petroleum
                              BP
                    Bukit Asam
    Canadian Natural Resources
                     Coal India
                 ConocoPhillips
                  Devon Energy
                                                                                                            fall
                 DMCI Holdings
               Dominion Energy                                                                              rise
                EOG Resources
                         Exelon
                    Firstenergy
       Inner Mongolia Yitai Coal
           Marathon Petroleum
          Occidental Petroleum
                           PG&E
                     Phillips 66
                  Power Assets
                           Total

 All of the companies that have climbed to a                  explicitly recognising climate change as a
higher level on the staircase have done so by                 business risk/opportunity.
introducing new carbon management practices,                 A further seven companies, including five oil
i.e. by improving their Management Quality:                   and gas producers, climb above Level 2 by
     Ten companies, including eight oil and gas              virtue of setting emissions reduction targets.
      producers, climb above Level 0 or Level 1 by            In the case of BP, setting a quantitative,

4
 Electricity utilities and oil and gas producers were previously assessed in January 2017, while the coal mining
sector was assessed in July 2017.
                                                                                                                   14
long-term emissions reduction target lifts the               Indicator by indicator
   company from Level 2 to 4.
                                                                When companies’ Management Quality is viewed
Three companies fall from Level 2 to 1, because                 indicator by indicator (Figure 3), we see a
they are assessed as not explicitly recognising                 greater proportion of companies across the three
climate change as a business risk/opportunity.                  sectors carrying out the basic carbon
This may reflect a change in methodology from                   management practices associated with Levels 0
2017, when the equivalent question was “Does                    to 2, and fewer companies implementing the
the company explicitly recognise climate change                 more advanced practices associated with Levels
as a significant issue for the business?” This year             3 and 4.
the question has a risk framing, in line with the
recommendation of TCFD.
Figure 3. Number of companies across all sectors scoring Yes (blue) against individual criteria,
and No (red)
                                                            0    15      30      45      60     75      90     105

                                    L0|1. Acknowledge?
          L1|2. Explicitly recognise as risk/opportunity?
                       L1|3. Policy commitment to act?
                               L2|4. Emissions targets?
                  L2|5. Disclosed Scope 1&2 emissions?
                             L3|6. Board responsibility?
                 L3|7. Quantitative emissions targets?
                L3|8. Disclosed any Scope 3 emissions?
             L3|9. Had operational emissions verified?
         L3|10. Support domestic and intl. mitigation?
               L3|11. Process to manage climate risks?
            L4|12. Disclosed use of product emissions?
                  L4|13. Long-term emissions targets?
 L4|14. Incorporated ESG into executive remuneration?
        L4|15. Climate risks/opportunities in strategy?
         L4|16. Undertakes climate scenario planning?
           L4|17. Discloses an internal price of carbon?

One hundred companies out of 105 have a policy                  Progress is particularly weak on three practices
commitment to act on climate change and 90                      associated with Level 4. Two of these constitute
companies explicitly recognise climate change as                new criteria introduced by TPI in 2018 to reflect
a relevant business risk/opportunity. Most                      the recommendations of the TCFD in the area of
companies now disclose their operational                        strategy: incorporating climate change risks and
emissions (77/105) and have allocated board                     opportunities in company strategy (32/105) and
responsibility for climate change (67/105).                     undertaking climate scenario planning (23/105).
Of the more advanced practices, it is notable                   In addition, only 24 out of 105 companies disclose
that 70% of companies (73/105) have a process                   an internal price of carbon. Still only 54% of
in place to manage climate-related risks, and                   companies (57/105) have set any kind of target
72% (76/105) have incorporated ESG issues into                  to reduce their emissions.
executive remuneration.

                                                                                                                15
Carbon Performance of                                   utilities in emerging markets, and relative to the
                                                        global average. This makes it easier for them to
electricity utilities                                   align with global benchmarks. The EU’s Below 2
                                                        Degrees benchmark is particularly low.
The second approach TPI takes to assessing
companies on the low-carbon transition is               Carbon Performance in coal
Carbon Performance. This is a quantitative
benchmarking of companies’ emissions
                                                        mining, and oil and gas
pathways against the international targets and          TPI does not currently assess the Carbon
national pledges made as part of the 2015 UN            Performance of companies in the coal mining
Paris Agreement.                                        and oil and gas sectors. This is due to a lack of
In this report, we assess the Carbon Performance        company emissions targets in these two sectors
of 37 electricity utilities that have a significant     that encompass downstream emissions from use
electricity generation business. The results            of sold products, i.e. burning coal, oil and gas for
demonstrate that there continues to be a                energy in buildings, electricity, industry and
shortfall of emissions targets TPI can use to           transport. The vast majority of lifecycle
assess the Carbon Performance of electricity            emissions in these sectors stem from such use of
utilities, even if targets are more prevalent in the    companies’ sold products, so it is imperative that
electricity sector than they are in most other          they are included in the analysis.
sectors TPI has assessed to date. Of the 37             In March 2018 we published a discussion paper,
companies assessed, 26 have targets extending           which sets out a proposal for how Carbon
to at least 2020, but only 19 have targets              Performance could be assessed in the oil and gas
encompassing 2030. This is, however, an                 sector in future.[1] Its central premise is that oil
improvement on the share of companies with              and gas producers are engaged in primary
long-term emissions targets in our 2017 report on       energy supply and therefore that the appropriate
the sector.                                             measure of carbon performance in the sector is
In terms of the ambition of utilities’ targets, it is   the lifetime carbon intensity of primary energy
encouraging to see that more than half of the           supply. IEA projects that in a 2 Degrees scenario
company targets are aligned with the Paris              this carbon intensity will fall by two thirds
Pledges in 2020, and most of them are even              between now and 2050.
aligned with Below 2 Degrees (Figure 4). In 2030,       We test the concept using recent disclosures
still more than half of the company targets are         from a small number of oil and gas producers,
aligned with the Paris Pledges, but only five           who are beginning to embrace a low-carbon
companies do enough to be aligned with Below 2          strategy for the long term that will see them
Degrees: E.ON, EDF, Enel, Iberdrola and SSE. This       reduce their carbon intensity of primary energy
implies that companies’ targets are often               supply, or otherwise provide information about
ambitious, but by 2030 they are struggling to           long-term production and sales. We also set out
keep pace with the decarbonisation necessary to         minimum disclosures that we think should be
deliver the Paris Agreement’s overall objective.        provided by all oil and gas companies. A similar
We found a similar pattern last year.                   approach could be followed in the coal mining
The largest global utilities are predominantly          sector and we continue to work with both sectors
based in the USA and Europe and as such they            to develop and embed these approaches.
have a lower emissions intensity on average than

                                                                                                          16
Figure 4. Alignment of electricity utilities’ emissions intensity with international emissions
targets in selected years

                               2020                                         2030

                                                                        5
                                        11
                    13

                                                                6
                                                                                   18
                      1
                          1
                                   11

                                                                    8
    No targets   Not aligned    Paris Pledges   2C   Below 2C

                                                                                                 17
3 . Management quality of coal mining
companies
                                                           coal in 2017/18. This group includes seven general
This TPI assessment looks at 19 of the world’s             mining companies and 12 companies specialised
largest mining companies, by market                        in mining coal.
capitalisation, which were engaged in mining

Figure 5. Management Quality of 19 of the world's largest companies engaged in mining coal in
2017/18
        Level 0            Level 1               Level 2              Level 3            Level 4
        Unaware            Awareness             Building capacity    Integrating into   Strategic
                                                                      operational        assessment
                                                                      decision making

                                                                                         4* Anglo
                                                                                         American ↔
                                                                                         4* BHP Billiton
                                                                      African            ↔
                                                                      Rainbow
                                                                      Minerals ↔
                                                 Adaro Energy ↑1      Banpu ↔            Glencore ↔
                                                 Exxaro                                  Rio Tinto ↔
                                                 Resources ↔
                           China Shenhua                                                 South32 NEW
                           Energy ↔                                                      Vale ↔
                           Coal India ↓1
        Shougang
        Fushan             DMCI Holdings ↑1
        Resources ↔        Inner Mongolia
                           Yitai Coal ↑1
                           Jastrzebska Spolka
                           Weglowa NEW
                           Bukit Asam ↓1
                           Whitehaven Coal ↔
                           Yanzhou Coal
                           Mining ↔

          ↑Up from last year   ↓ Down from Last year       ↔ no change on previous assessment

Overall results                                            One company is on Level 0 – Unaware of (or Not
                                                           Acknowledging) Climate Change as a Business
Figure 5 shows where the 19 companies sit on the           Issue. This is the coal mining company Shougang
TPI Management Quality staircase. The TPI online           Fushan Resources, listed in Hong Kong. This
tool provides a question-by-question assessment            means it does not: (a) have a policy or
of each company.5                                          commitment statement on climate change that

5
    http://www.lse.ac.uk/GranthamInstitute/tpi/the-toolkit/
18
commits it to addressing the issue; (b)                Building Capacity. However, only two mining
demonstrate recognition of climate change as a         companies are actually on Level 2. Instead, there
relevant risk/opportunity to the business; (c)         is a cluster of eight relatively high-performing
have emissions reduction targets; or (d) disclose      companies on Levels 3 and 4. Seven of these are
its Scope 1 and 2 greenhouse gas emissions.            general mining companies. The exception is
Eight companies are on Level 1 – Acknowledging         Banpu. By contrast, the 12 pure play coal mining
Climate Change as a Business Issue. In seven           companies are (Banpu aside) on Levels 0 to 2,
cases, these companies have in place a policy on       with most on Level 1.
climate change, but despite this they do not           Trends in company Management
explicitly recognise climate change as a relevant
business risk/opportunity. The exception is DMCI
                                                       Quality
Holdings, which does the opposite.                     Figure 5 also tracks the progress of companies
Two companies are on Level 2 – Building                that featured in TPI’s assessment of coal mining
Capacity. They are Adaro Energy and Exxaro             from July 2017.[3] Seventeen companies were
Resources, but their Management Quality                also covered last year, with two new additions
profiles are in fact quite different. Adaro Energy     this year: Jastrzebska Spolka Weglowa, and
scrapes into Level 2 by virtue of having a climate     South32.
change policy in place and explicitly recognising      Five companies have moved up or down by one
climate change as a business risk/opportunity,         level since 2017. The three movements up appear
but it does not satisfy any other criterion on Level   to be attributable to improvements in the
2 or above. By contrast, Exxaro Resources              relevant companies’ management practices,
satisfies 13 of 17 criteria in all, but is stuck on    while the two movements down appear to be
Level 2 since it has not set an emissions reduction    attributable to changes to the Management
target.                                                Quality methodology:
Two companies are on Level 3 – Integrating into           DMCI Holdings and Inner Mongolia Yitai Coal
Operational Decision Making. African Rainbow               have both moved from Level 0 to 1, by
Minerals satisfies all Level 3 criteria, except it         respectively demonstrating explicit
does not disclose Scope 3 emissions from use of            recognition of climate change as a relevant
sold products, a key disclosure for companies              risk/opportunity to the business, and
engaged in fossil fuel extraction. Banpu, the Thai         introducing a climate change policy.
coal mining specialist, only satisfies two Level 3
                                                          Adaro Energy progresses from Level 1 to 2 by
criteria, those relating to assigning board
                                                           introducing a climate change policy.
responsibility for climate change and having set
a long-term quantitative emissions target.                Coal India and Bukit Asam fall from Level 2 to
                                                           1, because they are no longer assessed as Yes
Six companies are on Level 4 – Strategic
                                                           on question 2. This may reflect a change in
Assessment. These include all the large cap
                                                           methodology, as question 2 has evolved from
general mining companies.
                                                           “Does the company explicitly recognise
Anglo American and BHP Billiton are both 4*                climate change as a significant issue for the
companies as they satisfy all of the indicators.           business?” to “Does the company explicitly
Coal mining has the lowest average                         recognise climate change as a relevant risk
Management Quality score of the three sectors              and/or opportunity for the business?”
assessed in this report; 2.2, equivalent to Level 2,

                                                                                                       19
Indicator by indicator                                              Coal mining companies perform worse than
                                                                    electricity utilities and oil and gas producers on
Figure 6 looks at how the 19 coal mining                            almost all criteria, however a higher proportion
companies perform against the 17 individual                         of coal mining companies (led by the general
criteria/questions. Besides having a policy                         mining companies) have set quantitative
commitment to act on climate change (which in                       emissions targets than oil and gas producers
turn ensures companies are assessed as                              (short- or long-term), and more coal mining
acknowledging climate change as a business                          companies incorporate climate change risks and
issue), only two other criteria are met by a                        opportunities in company strategy than oil and
majority of companies in this sector: explicit                      gas producers.
recognition of climate change as a relevant
risk/opportunity for the business, and disclosure                   Only seven coal mining companies disclose
of operational emissions.                                           emissions from use of sold products, despite their
                                                                    importance to these companies’ lifecycle carbon
                                                                    footprints.

Figure 6. Number of companies in the coal mining sector scoring Yes (blue) against individual
questions, and No (red)
                                                            0   1   2   3   4   5   6   7   8   9 10 11 12 13 14 15 16 17 18 19

                                    L0|1. Acknowledge?

          L1|2. Explicitly recognise as risk/opportunity?

                       L1|3. Policy commitment to act?

                               L2|4. Emissions targets?

                  L2|5. Disclosed Scope 1&2 emissions?

                             L3|6. Board responsibility?

                 L3|7. Quantitative emissions targets?

                L3|8. Disclosed any Scope 3 emissions?

             L3|9. Had operational emissions verified?

         L3|10. Support domestic and intl. mitigation?

               L3|11. Process to manage climate risks?

            L4|12. Disclosed use of product emissions?

                  L4|13. Long-term emissions targets?

 L4|14. Incorporated ESG into executive remuneration?

        L4|15. Climate risks/opportunities in strategy?

         L4|16. Undertakes climate scenario planning?

           L4|17. Discloses an internal price of carbon?

                                                                                                                            20
4. Management Quality and Carbon
Performance of electric utilities
This TPI assessment includes 41 electricity utilities       Carbon Performance, because they have a
from both the conventional electricity and multi-           significant electricity generation business (the
utilities sub-sectors. We select companies mainly           remaining four utilities are specialised in
on the basis of large market capitalisation. These          electricity transmission and distribution).
companies usually constitute the largest
holdings in investor portfolios. We also include an         Overall results for Management
additional two smaller companies, which are                 Quality
subject to investor engagement as part of the
Climate Action 100+ Initiative: KEPCO and EDF.              Figure 7 shows where the 41 companies sit on the
These companies are systemically important for              TPI Management Quality staircase. The TPI online
climate change.                                             tool provides a question-by-question assessment
Of the 41 electricity utilities we assess on                of each company.
Management Quality, 37 can also be assessed on

Figure 7. Management Quality of 41 large and high-emitting electricity utilities
        Level 0           Level 1                 Level 2             Level 3            Level 4
        Unaware           Awareness               Building            Integrating into   Strategic
                                                  capacity            operational        assessment
                                                                      decision making

                                                                                         4* AGL Energy
                                                                                         NEW

                                                                                         4* National
                                                                      American           Grid NEW
                                                                      Electric Power
                                                                      ↔
                                                  Alliant Energy      CLP Holdings ↔
                                                  NEW

                                                                      CMS Energy NEW     E.ON NEW
                                                  Ameren     NEW
                          Chubu Electric                              Con Edison NEW     EDF NEW
                          Power NEW               CenterPoint
                                                                      DTE Energy ↔       Enel ↔
                                                  Energy NEW
                          Edison                                                         Engie NEW
        None                                      Dominion            Eversource
                          International ↔
                                                  Energy ↑1           Energy ↔           Entergy ↔
                          Power Assets ↓1
                                                  Duke Energy         Exelon ↑1          Fortum NEW
                          Tenaga Nasional         NEW
                          NEW
                                                                      Firstenergy ↑2     Iberdrola ↔
                                                  Fortis ↔            KEPCO     NEW
                                                                                         Orsted NEW
                                                  NextEra             RWE NEW            PG&E ↑1
                                                  Energy ↔            Sempra Energy      Pinnacle West
                                                  Origin Energy       NEW
                                                                                         Capital NEW
                                                  NEW
                                                                      WEC Energy         Red Electrica
                                                  PPL ↔               Group NEW          NEW

                                                  Southern ↔                             SSE ↔
                                                                                         XCEL Energy ↔

       ↑Up from last year       ↓ Down from Last year       ↔ no change on previous assessment

                                                                                                               21
There are no electricity utilities on Level 0.        Two electricity utilities are 4* companies that
                                                      satisfy all 16 criteria applying to the sector:
Four companies are on Level 1 – Acknowledging         AGL Energy and National Grid.
Climate Change as a Business Issue. Of these
four companies, Edison International fails to         With an average level score of 2.9, electricity has
progress as it does not have a policy                 the highest Management Quality of any sector
commitment to act on climate change, while the        assessed by TPI to date, with the next highest
other three companies have a policy                   being the automobile manufacturing sector,
commitment to act, but fail to demonstrate that       which scored 2.6 on average when assessed in
they explicitly recognise climate change as a         February 2018.
relevant business risk/opportunity.
                                                      An average level score of 2.9 puts the typical
Ten companies are on Level 2 – Building               electricity utility closest to Level 3, integrating
Capacity. Of these, three companies disclose          climate change into operational decision-
their Scope 1 and 2 emissions, but fail to progress   making. This means the typical company in this
because they have not yet set an emissions            sector has at least done all of the following:
reduction target: Ameren, Fortis and Origin           established a climate change policy; explicitly
Energy. Conversely Alliant Energy, Dominion           recognised climate change as a relevant business
Energy and Duke Energy have set emissions             risk/opportunity; disclosed Scope 1 and 2
targets, but fail to progress due to not disclosing   emissions; and set an emissions reduction target
their Scope 1 and 2 emissions. The remaining four     of some form. Most utilities go well beyond this
companies satisfy neither of these Level 2            in the areas of policy, disclosure, targets and/or
criteria.                                             strategy.

Twelve (12) companies are on Level 3 –
Integrating into Operational Decision Making.
The reasons for these companies failing to
progress to Level 4 are diverse. The question on
which these 12 companies are most commonly
assessed as No is: has the company had its
operational (i.e. Scope 1 and/or 2) emissions
data verified? Only five of 12 companies have
done so. The remaining Level 3 criteria are met
by most of the 12 companies and all 12
companies have a process to manage climate-
related risks. Question 12 does not apply to the
electricity sector as most of the lifecycle
emissions of a utility are within Scopes 1 and 2.

Fifteen (15) companies, more than one third of
the sample, are on Level 4 – Strategic
Assessment. All 15 of these companies have set a
quantitative, long-term emissions target and
incorporated ESG issues into executive
remuneration. However, in line with the coal
mining and oil and gas sectors, relatively few
companies have incorporated climate change
risks/opportunities into their strategy, undertake
climate scenario planning, or disclose an internal
carbon price.

22
Trends in company Management                          company explicitly recognise climate change as a
                                                      relevant risk and/or opportunity for the
Quality                                               business?”
Of the 19 electricity utilities that were also
assessed by TPI in 2017, 14 stay on the same level,   Indicator by indicator
while four move up by at least one level:             Figure 8 looks at how the 41 electricity utilities
   Dominion Energy progresses from Level 1 to 2      perform against the 16 individual Management
    by demonstrating explicit recognition of          Quality criteria/questions that apply to this
    climate change as a business                      sector. Performance is strong across the board,
    risk/opportunity.                                 compared with other sectors TPI has assessed. A
 Exelon progresses from Level 2 to 3 by setting      particularly large proportion of electricity utilities
    an emissions reduction target.                    have set emissions targets and incorporate ESG
 Firstenergy moves up two levels from 1 to 3 by      into executive remuneration.
    introducing a policy commitment to action
                                                      Only on one criterion is the electricity sector
    on climate change and publishing
                                                      outperformed: relatively more oil and gas
    information on its Scope 1 and 2 emissions.
                                                      producers have had their operational emissions
 PG&E progresses from Level 3 to 4 by setting a
                                                      data verified. Only in three cases does a majority
    quantitative emissions target.
                                                      of companies in the electricity sector fail to meet
Power Assets moves down from Level 2 to 1 due
                                                      a criterion. These are: (i) integrating climate
to being assessed as No on question 2 this year.
                                                      risks/opportunities in company strategy, (ii)
This may reflect a change in methodology, as
                                                      undertaking climate scenario planning and (iii)
question 2 has evolved from “Does the company
                                                      disclosing an internal carbon price. They also
explicitly recognise climate change as a
                                                      proved challenging for coal mining companies
significant issue for the business?” to “Does the
                                                      and oil and gas producers to meet.

                                                                                                         23
Figure 8. Number of electricity utilities scoring Yes (blue) against individual questions, and No
(red)
                                                            0   2   4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40

                                    L0|1. Acknowledge?

          L1|2. Explicitly recognise as risk/opportunity?

                       L1|3. Policy commitment to act?

                               L2|4. Emissions targets?

                  L2|5. Disclosed Scope 1&2 emissions?

                             L3|6. Board responsibility?

                 L3|7. Quantitative emissions targets?

                L3|8. Disclosed any Scope 3 emissions?

             L3|9. Had operational emissions verified?

         L3|10. Support domestic and intl. mitigation?

               L3|11. Process to manage climate risks?

            L4|12. Disclosed use of product emissions?                                  Not applicable

                  L4|13. Long-term emissions targets?

 L4|14. Incorporated ESG into executive remuneration?

        L4|15. Climate risks/opportunities in strategy?

         L4|16. Undertakes climate scenario planning?

           L4|17. Discloses an internal price of carbon?

24
Global Carbon Performance                              intensity of electricity generation that is below
                                                       the benchmarks can be said to be aligned with
Table 2 summarises Carbon Performance data             those benchmarks and therefore with the
for the 37 electricity utilities covered by this       international commitments underpinning
report, which have a significant electricity           them. A company whose emissions intensity is
generation business.6 The traffic light scheme         above the benchmarks is not aligned.
indicates that a company with an emissions

Table 2. Company emissions intensity pathways and global electricity sector benchmarks,
2014-2030
      Company                                 Emissions intensity of electricity generation (tCO2/MWh)
                                               2014    2015     2016     2017    2020      2025    2030
      AGL Energy                               0.958   0.948   0.968
      Alliant Energy                                           0.839    0.831    0.807     0.767   0.727
      Ameren                                   0.688   0.660   0.675    0.667    0.644     0.605   0.566
      American Electric Power                  0.763   0.723   0.693    0.677    0.629     0.550   0.470
      Chubu Electric Power                     0.489   0.492   0.498    0.489    0.462     0.416   0.371
      CLP                                      0.840   0.810   0.820    0.800    0.600     0.550   0.500
      CMS Energy                               0.920   0.910   0.793     0.771   0.703     0.591
      Dominion Energy                          0.361   0.348   0.339    0.336    0.327     0.313   0.298
      DTE Energy                                               0.690    0.707    0.669     0.586   0.489
      Duke Energy                                      0.454   0.440    0.435    0.409     0.366   0.322
      E.ON                                     0.430   0.400   0.041    0.044    0.041     0.037   0.032
      EDF                                      0.102   0.095   0.077    0.082    0.081     0.079   0.076
      Edison International                     0.176   0.195   0.146
      Enel                                     0.388   0.404   0.388    0.377    0.342     0.285   0.228
      Engie                                    0.434   0.447   0.395    0.385    0.354
      Entergy                                  0.197   0.203   0.179    0.272    0.315
      Eversource Energy                        0.693   0.722   0.513
      Exelon                                   0.084   0.038   0.049    0.050    0.053
      Firstenergy                                      0.525   0.502    0.488    0.444     0.371   0.298
      Fortis                                   0.679   0.640   0.641    0.635    0.612     0.573   0.534
      Fortum                                   0.177   0.166   0.173    0.173
      Iberdrola                                0.212   0.225   0.177    0.187    0.240     0.194   0.149
      KEPCO                                    0.471   0.464   0.477
      NextEra Energy                           0.242   0.249   0.216
      Origin Energy                            0.746   0.688   0.698
      Orsted                                   0.227   0.162   0.176    0.111    0.079
      PG&E                                     0.083   0.093   0.067
      Pinnacle West Capital                    0.533   0.539   0.404    0.439    0.406     0.350   0.294
      Power Assets
      PPL                                      0.950   0.890   0.850    0.870    0.832     0.769   0.706
      RWE                                      0.745   0.708   0.686    0.655    0.620
      Sempra Energy                            0.315   0.294   0.254    0.246    0.223
      Southern Company                         0.590   0.544   0.528
      SSE                                      0.474   0.397   0.304    0.293    0.260     0.205   0.150
      Tenaga Nasional                                          0.539
      WEC Energy Group                         0.917   0.853   0.810    0.799    0.767     0.714   0.660
      XCEL Energy                              0.713   0.707   0.650    0.638    0.602     0.492   0.349
      Below 2 Degrees                          0.572   0.546   0.521    0.497    0.430     0.330   0.229
      2 Degrees                                0.572   0.549    0.527   0.506    0.447     0.361   0.245
      Paris Pledges                            0.572   0.557    0.543   0.529    0.492     0.439   0.402

    Key     Aligned with Below 2°C    Aligned with 2°C    Aligned with Paris Pledges      Not aligned

6
 Four companies are excluded on this basis: CenterPoint Energy, Con Edison, Red Electrica and National
Grid. These companies are engaged in electricity transmission and distribution, but not generation.
                                                                                                           25
Data availability: TPI’s Carbon Performance             benchmarks. E.ON is projected to have the
assessment is based on companies’ public                lowest 2020 emissions intensity of all, at just
disclosures of their historical emissions, as well      0.041 tCO2/MWh,8 while PPL is projected to have
as quantitative targets they have set to reduce         the highest, at 0.832 tCO2/MWh.
their emissions in the future (see Appendix 3 for
further details). Historical Carbon Performance         2030 Carbon Performance: in 2030, five
data are available for 36 out of 37 companies.          companies remain aligned with Below 2 Degrees:
The exception is Power Assets. Twenty-six               E.ON, EDF, Enel, Iberdrola and SSE, all European-
companies have also set company-wide,                   headquartered utilities. Six companies are
quantitative targets for their future emissions,        aligned with the Paris Pledges: Chubu Electric
which we can use to estimate Carbon                     Power, Dominion Energy, Duke Energy,
Performance in 2020. Nineteen companies have            Firstenergy, Pinnacle West Capital and XCEL
useable targets extending to at least 2030.             Energy. Five of these utilities are based in the
                                                        United States. The remaining eight utilities have
In our 2017 assessment of electricity utilities’        an emissions intensity of electricity generation
Carbon Performance,[4] we found that nine of            above the Paris Pledges benchmark.
the 20 companies we assessed had set emissions
targets extending to 2020 or beyond, which we           2 Degrees versus Below 2 Degrees: the different
could use. We see a larger share this year (26 out      interpretations of the overall goal of the Paris
of 37), and, of the 19 companies assessed in both       Agreement, i.e. whether it be 2 Degrees or Below
2017 and 2018, the number of companies with             2 Degrees, do not seem to make a substantial
useable 2020 targets has risen from nine to 13,         difference to company alignment between now
while the number of companies with useable              and 2030. Only five companies fall between
2030 targets has risen from six to 11.                  these scenarios at any point, being aligned with
                                                        2 Degrees, but not Below 2 Degrees, and they
Historical emissions intensity: 21 of the 37            never do so for more than three consecutive
companies had a historical emissions intensity7         years. There is a larger difference between 2
under the global Below 2 Degrees benchmark. On          Degrees and the Paris Pledges and eight
average, the 36 utilities providing data had a          companies are aligned with the Paris Pledges,
historical emissions intensity of 0.502 tCO2/MWh,       but not with 2 Degrees, at some point between
which is also under the global Below 2 Degrees          2014 and 2030.
benchmark over the historical period (2013-17).
                                                        Regional Carbon Performance
2020 Carbon Performance: assuming company
targets are met, 13 out of the 26 utilities with        The fact that a majority of utilities assessed in
2020 performance data will be aligned with the          this report had a historical emissions intensity
global Below 2 Degrees benchmark. Firstenergy           under the global Below 2 Degrees benchmark
will be aligned with the 2 Degrees benchmark,           partly reflects the predominance of US and
but not with the Below 2 Degrees benchmark,             European utilities in the sample. Indeed, 20 of
while the Japanese utility Chubu Electric Power         the 37 utilities we assess on Carbon Performance
will be aligned with the Paris Pledges, but neither     are based in the USA and nine are based in the
with the 2 Degrees nor the Below 2 Degrees              EU.

7
 This is calculated as the (unweighted) average of a company’s disclosed emissions intensities between
2013 and 2017. Some companies do not disclose data for every year in this period. Some companies are yet
to disclose their 2017 emissions intensity. This can be estimated by interpolating between a year prior to
2017 and the company’s target year, but we do not include such estimates in the figures reported in this
paragraph.
8
 E.ON recently separated its fossil fuel assets into a new company, Uniper, leaving E.ON with renewable
power assets only.
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