Preparer Forum Disclosure in a time of transition: Climate-related financial disclosure and the opportunity for the electric utilities sector ...
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TCFD Electric Utilities Preparer Forum Disclosure in a time of transition: Climate- related financial disclosure and the opportunity for the electric utilities sector
July 2019
In collaboration with:
TCFD Electric Utilities Preparer Forum 2
Contents
1 Executive summary | 4
2 Introduction and context | 7
Background on the TCFD Electric Utilities Sector Preparer Forum,
its members and purpose | 8
Purposes of and audiences for this report | 8
Context: Electric utilities and the energy transition | 9
3 Effective disclosure across the four TCFD areas | 12
Governance | 14
Strategy | 21
Risk management | 40
Metrics and targets | 47
4 Conclusion | 55
5 Appendix | 58
TCFD
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1
Executive
summary
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1 Executive summary
Climate change is The TCFD Electric Utilities perspectives from users of climate-
simultaneously a challenge Preparer Forum (“the Forum”) is related financial disclosures,
and an opportunity for the a collaboration between CLP, including investors and other
electric utilities sector. Given EDF, EDP, EnBW, Enel, Iberdrola financial market participants who
its historical carbon footprint, and the World Business Council use the information prepared by
climate change presents for Sustainable Development companies in order to assess and
material risks, requiring a (WBCSD). The Forum’s aim is to price risk and make decisions about
substantial generation mix advance the implementation of how to allocate financial capital.
turnaround. However, at the the recommendations of the Task The report also explores some of
same time, the confluence Force on Climate-related Financial the challenges Forum member
of multiple factors presents Disclosure (TCFD) by reviewing companies face in responding to
significant opportunities. members’ current climate-related the TCFD’s recommendations and
Those factors include financial disclosures, identifying meeting the expectations of users
increases in renewable and examples of disclosure practice of climate-related information.
low-carbon capacity and that are consistent with the TCFD’s
the contribution it makes to recommendations (which cover four
THE MAIN FINDINGS AND
electricity generation, falling main areas: governance, strategy,
THEMES FROM THE REPORT
costs of renewable power, risk management and metrics
development of technologies, and targets), and considering Governance – With changing
new environmental policies how disclosures might evolve energy policies affecting companies
and regulatory reforms, many over the TCFD’s “implementation across many jurisdictions, climate
of which are designed to path”, which anticipates the change is part of the day-to-day
support the energy transition development of climate change- reality for the electric utilities
required to achieve the goals related disclosure practices industry. Consequently, Forum
of the Paris Agreement. over a three to five year period members are at various stages
following the publication of the of embedding climate change
Electricity, increasingly generated recommendations in June 2017. into governance systems and
from renewables and low-carbon strategic and operational decision-
sources, will play a fundamental Two years on from the release of making processes. Embedding
role in the decarbonization of the the TCFD’s recommendations, climate change into governance,
economy and is expected to be corporate reporting on climate operational and strategic systems
advanced economies’ largest change is still evolving. The 2019 applies across numerous corporate
energy carrier by 2050. This, in TCFD Status Report shows that, functions, not just sustainability.
turn, will depend on investment although companies have made The integrated reporting of these
in new infrastructure to enable some progress, the pace of processes demonstrates this.
renewable and low-carbon capacity implementation is slow and there is Users want to see that boards and
to be integrated into electricity scope for further improvement in management have the appropriate
systems and the development of climate-related financial disclosure information, skills, experience and
new technologies and customer practices. In particular, disclosures incentives to support their ambition
solutions to ensure electricity about the potential financial impact as enablers of the transition. Forum
security. The electric utilities of climate-related issues and the members do this by demonstrating
sector is uniquely placed to resilience of company strategies how information flows between
participate actively in the transition under different climate scenarios corporate teams, management and
to the low-carbon economy, require more clarity. the board and by showing how that
addressing the challenges that information influences business
it presents (particularly around The aim of this report is to
provide a snapshot, including decisions and capital allocation in
ensuring security of supply and line with low-carbon strategies.
the retirement/phase out of examples, of how Forum
conventional generation assets) member companies are currently
and leveraging opportunities as one providing effective climate-related
of the central architects of the low- financial disclosures. It includes
carbon transition.
TCFD Electric Utilities Preparer Forum 5
Strategy – The utilities sector their ability to drive the low-carbon Metrics and targets – Forum
faces risks associated with the transition. However, there are still members have been disclosing
physical impacts of climate opportunities for disclosures to operational GHG emissions metrics
change, including increasing develop in this area, particularly with (both absolute and intensity)
temperature, changes in rainfall respect to physical risks. for years and are increasingly
and increases in frequency and disclosing climate-related financial
severity of extreme weather events Risk management – For the utilities metrics, as recommended by
(such as hurricanes and wildfires). sector, transition risks are often the TCFD. Forum members have
These can affect generation and associated with the link between developed a table of illustrative
network assets as well as customer the regulatory and operating financial and operational metrics
services and demand. The market context, the need to balance a covering investments in and returns
and regulatory environment also range of influences and demands from generation, as well as non-
presents climate-related risks for connected to energy security, generation transition enablers that
electric utilities. These include access and decarbonization. will make the system more flexible
efforts in certain jurisdictions to Transition risks can be more volatile and efficient, such as investments
support the decarbonization of than physical risks. This context in smart networks and customer
the energy system through targets is of course changing and a risk solutions. It is important that
for renewables, the phasing out of today could become an opportunity companies disclose both the metric
coal generation, energy efficiency, tomorrow – the distinction often and the associated definitions
greenhouse gas (GHG) reduction being highly policy-dependent. and scopes in order to allow users
targets and carbon pricing policies. to appraise and compare them
Physical risks are challenging and
fairly, pending the development of
On the other hand, the sector is companies are already feeling
common standards.
well positioned to realize many acute and localized impacts.
opportunities associated with the However, companies have not Disclosure challenges still remain
low-carbon transition, especially developed their disclosures on for the sector as companies
the coupling of electrification physical risks as well as those continue efforts to respond to the
and decarbonization highlighted relating to transition risks. This TCFD recommendations. Variations
in transition scenarios. Forum is because companies expect between business models, size
members demonstrate responses physical risks to develop over the and regulatory environments
to these risks and opportunities longer term, they are facility and necessitate the use of different
by increasingly shifting portfolios location specific and assessment metrics to convey impacts, but can
to low-carbon generation, of the risk depends on scientific make data comparability difficult
strengthening infrastructure, and evidence and climate forecasting. to achieve. Some sensitivities
using financial instruments to Climate risks are closely related to exist around companies’ ability to
support the energy transition. many other types of risk, including publish the forward-looking financial
Forum members are diversifying those relating to regulation and information that users demand, as
geographically, developing policies, power demand and market well as the assumptions behind and
technology and new product dynamics. Therefore, in order to outcomes of scenario analyses for
offerings, remaining flexible, build a comprehensive picture which practices and methodologies
adaptable and innovating to provide of the company’s exposure to are still uncertain. Further work
customers with new solutions. climate risk, disclosures highlight along the implementation path
interconnections between climate will require additional collaborative
Planning for the future has always and other risks. efforts and additional dialogue and
been a priority for the sector and engagement between preparers
companies are using scenario and users of information.
analysis to assess the resilience
of their renewed strategies and
TCFD Electric Utilities Preparer Forum 6
2 Introduction and context
TCFD
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2 Introduction and context
BACKGROUND ON THE The Forum received valuable input PURPOSES OF AND
TCFD ELECTRIC UTILITIES from the TCFD Secretariat and AUDIENCES FOR THIS
PREPARER FORUM, ITS a limited group of self-selected REPORT
MEMBERS AND PURPOSE users of climate-related financial
This report:
disclosures, including equity and
Representatives from CLP, credit analysts. The purpose of • Reflects the current state
EDF, EDP, EnBW, Enel, and the consultation with users was to of climate-related financial
Iberdrola – utilities companies seek views on how companies can disclosure by highlighting how
of different sizes that operate respond to the four areas of the Forum member companies
across different countries and TCFD’s recommendations in such a are implementing the TCFD’s
regions with a variety of business way as to maximize the usefulness recommendations and giving
models – established the TCFD of information for financial market practical examples of effective
Electric Utilities Preparer Forum participants. We have synthesized climate change disclosure;
in December 2018. The World the user perspectives for the
Business Council for Sustainable purposes of this report and present • Examines particular challenges
Development (WBCSD) coordinates them anecdotally in the “user that the Forum has faced in
the Forum’s work. Membership of perspectives” sections. Readers implementing certain aspects
the Forum is restricted to a small, should recognize the limited nature of the TCFD recommendations;
manageable number of utilities of the engagement with users.
The Task Force recognizes reporting by asset managers and asset owners is intended to satisfy
• Provides insight into particular
companies because of the limited the needs of clients, beneficiaries, regulators, and oversight bodies and follows a format that is
The Forum’s generally different from
objectives corporate
were disclosures
to financial reporting. For purposesthat demonstrate
of adopting the Task Force’s
project timeline. Forum members
review the
recommendations, asset managers and asset owners
current state of climate- the role
should of
use the sector
their existing in enabling
means of financial
include companies whose senior reporting to their clients and beneficiaries where relevant and where feasible. Likewise, asset
related financial disclosure and the low-carbon transition;
management have made public managers and asset owners should consider materiality in the context of their respective
statements of support for the to identifymandates
examples of effective
and investment performance for clients and beneficiaries. 38
• Considers how reporting might
TCFD’s work and welcomed practice consistent with the TCFD’s
The Task Force believes that climate-related financial continue
disclosuresto develop
should in future
be subject in
to appropriate
the initiative to further enhance recommendations.
internal governance In addition,
processes. the
Since these disclosures
line should be included
with the TCFD’s in annual financial
illustrative
transparency on climate-related Forum provides
filings, the a commentary
governance processes should be similar to those used for existing financial reporting
implementation path.
and would likely involve review by the chief financial officer and audit committee, as appropriate.
risks and opportunities. on each of the recommendations
The Task Force recognizes that some organizations may provide some or all of their climate-
and makes proposals
related about how
financial disclosures in reports otherFigure 1: filings. This may occur because the
than financial
disclosures may evolve
organizations are not over
requiredtime. Principles
to issue public financial reportsof effective disclosure
(e.g., some asset managers and
asset owners). In
In the commentary, suchForum
the situations, organizations
TCFD should follow
Final internal Recommendations
Report: governance processes that
FORUM MEMBERS are the same or substantially similar to those used for financial reporting.
considers the seven principles of of the Task Force on Climate-related
A
Hendrik Rosenthal – CLP Introduction effective c.disclosure
Principles forthat form
Effective part
Disclosures Financial Disclosures
Figure 6
Angus Guthrie – CLP of the TCFD recommendations
To underpin its recommendations and
B
help guide current and future Principles for Effective Disclosures
Climate-Related (Figure
Risks, 1)developments
to inform in itsclimate-related
observations
Alexandre Marty – EDF financial
1 Disclosures
Opportunities, and
should represent
Financial Impactsabout the types the
reporting, of Task
climate-related
Force developed relevant information
Sara Goulartt – EDP financial disclosure
seven principlesthat are useful
for effective disclosure
C
Silvia Osorio – EDP Recommendations
Guidance
and (Figure 6), which are described more fully
andeffective.
in Appendix 3. When used by
2 Disclosures
and complete
should be specific
Lothar Rieth – EnBW organizations in preparing their climate-
Michael Gebbert – EnBW
D
Scenario Analysis and
related financial disclosures, these 3 Disclosures should be clear,
balanced, and understandable
Climate-Related Issues principles can help achieve high-quality
Francesca Gostinelli – Enel and decision-useful disclosures that
E enable users to understand the impact of 4 Disclosures should be consistent
over time
Claudio Dicembrino – Enel Key Issues Considered and
Areas for Further Work
climate change on organizations. The
Marta Martinez – Iberdrola F
Task Force encourages organizations to
consider these principles as they develop
5 Disclosures should be comparable
among companies within a sector,
Conclusion climate-related financial disclosures. industry, or portfolio
Appendices
The Task Force’s disclosure principles are 6
Disclosures should be reliable, verifiable,
and objective
largely consistent with internationally
accepted frameworks for financial
reporting and are generally applicable to
7
Disclosures should be provided
on a timely basis
most providers of financial disclosures.
The principles are designed to assist
organizations in making clear the linkages between climate-related issues and their governance,
strategy, risk management, and metrics and targets.
TCFD Electric Utilities Preparer Forum 8
The audiences for this report CONTEXT: ELECTRIC DRIVERS & INFLUENCES
include: UTILITIES AND THE
Regulation and policy
• Electric utilities sector ENERGY TRANSITION
companies seeking to enhance In the 2015 Paris Agreement, 195
Electric utilities have a pivotal United Nations (UN) member states
their climate-related financial
role to play in the global energy agreed to strengthen the global
disclosures;
transition, leading an unprecedented response to the threat of climate
• The TCFD in order to transformation driven by change by limiting warming this
provide input into any further electrification and decarbonization. century to well below 2 °C. Countries
deliberations on how the The transition and development that have ratified the agreement
recommendations could evolve of generation and non-generation are now putting in place policies
over time; activities present great challenges. and regulations to address climate
However, companies that are able to change. There are more than 1,500
• Investors and others using realize and implement opportunities climate laws and policies worldwide;
climate-related financial offered by new technologies, governments have introduced
disclosures who seek to infrastructure and customer 106 since the signing of the Paris
understand the current state solutions will create substantial Agreement.1 For electric utilities, a
of disclosure practice and the value for their businesses and range of policy measures influence
scope for its development over for wider society, responding to planning, business development
time; renewed climate-related public and operations. The European
interest and consciousness. This regulatory framework, for example,
• Organizations the TCFD introduction provides a summary of
has identified as making includes packages relating to
some of the key drivers, influences, market design2 and integration,
valuable contributions opportunities and challenges for
supporting adoption of the emissions trading,3 renewable
electric utilities associated with energy,4 and energy efficiency.5
recommendations, including the energy transition and climate
stock exchanges, investment The European Commission
change. This report explores also has a long-term strategic
consultants, credit rating these themes through the lens of
agencies, and organizations vision for a prosperous, modern,
the TCFD, with key insights and competitive and climate-neutral
that develop climate-related reflections from Forum members.
scenarios so that they can economy by 2050.6 Looking
The summary below is not a beyond the European Union
consider what further work comprehensive analysis of all
is required to support and (EU), globally, as of 1 April 2019,
factors affecting the electric utilities governments have implemented or
enhance climate-related industry during the low-carbon
financial disclosure; scheduled to implement 57 carbon
transition. pricing initiatives: 28 emissions
• Companies from other trading systems (ETSs), spread
industries looking to implement across national and subnational
the TCFD’s recommendations. jurisdictions, and 29 carbon taxes,
primarily implemented on a national
level.7
TCFD Electric Utilities Preparer Forum 9
Economics of low-carbon Given uncertainties associated provides significant opportunities
technologies with the energy transition (e.g., the for utilities.20 Electric vehicles, for
Low-carbon technology cost policy landscape supporting the example, could make up 57% of
reductions realized through ratcheting up of Paris Agreement passenger car sales globally by
efficiencies, falling capital costs, Nationally Determined Contributions 2040; electric buses could account
competitive auctions and effective (NDCs)), investors are increasingly for over 80% of municipal bus sales
management have all strengthened challenging utilities to diversify by the same date.21 Electrification
the business case for low-carbon their revenue streams,13 develop also dramatically increases the
investment. The benchmark more agile and flexible business energy efficiency of different uses.
levelized cost of electricity (LCOE) models,14 operate across multiple According to the International
per megawatt-hour for onshore geographies,15 use a range of Renewable Energy Agency (IRENA),
wind, solar photovoltaic (PV) and technologies,16 balance the electricity could become the
offshore wind has fallen by 49%, development and management main energy carrier, growing from
84% and 56% respectively since of generation vs customer a 20% to a 50% share of global
2010 and lithium-ion battery storage solutions and services,17 and take final consumption by 2050, with
by 76% since 2012.8 Technology up the benefits associated with renewable power able to provide
evolution and digitalization will bring digitalization to support efficiency the bulk of global power demand.22
greater efficiencies and further cost and the development of new Supported by a conducive
reductions supporting operations products.18 Companies that provide regulatory and economic context,
and maintenance.9 relevant solutions, managing coupled with strong customer
the pace, scale and scope of demand evidenced by growth
developments, will strengthen their in power purchase agreements
position and role in the market. (PPAs), hydro, nuclear, wind and
Resilience – flexibility solar PV will be significant sources
and diversification of emission-free electricity.23 Fossil
Another key driver influencing the BUSINESS OPPORTUNITIES fuel-based gas (and in the future
sector is the increasing need for green and blue gases24), existing and
system flexibility, responding to Electrification, renewables and emerging electricity storage forms
technological developments.10 The low-carbon generation and demand-side management
system requires greater flexibility Electricity is the fastest-growing may also play an important role in
as renewable capacity increases, source of final energy demand, with enabling the low-carbon transition,
prompting calls for investments developing economies accounting balancing the volatility of renewable
in grids, digital infrastructure, for the largest share of new energy.25
energy storage and demand- demand, driven by economic and
side management,11 as well as population growth.19 In advanced
in maintaining a minimum level of economies, the electrification of
dispatchable low-carbon generation transport, heating and industry also
capacity.12
TCFD Electric Utilities Preparer Forum 10Transmission improving communications, Retiring assets and the transition
and distribution accessibility, progressing advanced to new sources is a complex
To realize electrification and machine learning and artificial process that requires the careful
decarbonization potential and intelligence to enable higher asset evaluation of regulatory measures,
ensure electricity security, use, improved energy efficiency and profitability and viability, and close
the sector requires significant customer engagement.29 coordination between transmission
investments in efficient, smart, and generation planners, system
flexible system infrastructure. and market operators, and state,
Smarter and reinforced transmission Supply, legacy asset and provincial and regional regulators.
and distribution infrastructure will adaptation challenges Electric utilities are, however,
play an important role in integrating The need to balance accelerating efforts to retire older
new capacity, such as large- energy security, access and fossil-fired generation, meeting
scale wind and solar generation decarbonization through the energy planning criteria and identifying
assets and smaller decentralized transition30 raises questions and operational system changes that
renewable sources, as well as challenges relating to security of must be made.
managing congestion and dispatch, supply, viability and the retirement The physical effects of increasing
interconnections, security of supply of conventional generation assets. temperature, changes in rainfall
and resilience issues.26 Energy Utilities must develop system and increases in frequency and
service platforms and digitalization capabilities, especially flexibility, severity of extreme weather events
also offer business opportunities for in order to maintain a constant (hurricanes and wildfires, etc.)31
utilities, responding to the need for balance between electricity supply also present challenges and are
system change.27 and demand despite the potential increasingly receiving investor
variability and volatility of renewable attention.32 As a result, utilities are
energy sources. Fossil fuel-based now exploring the effects of, for
Customer and retail solutions gas (and in the future green and example, changes in temperatures
Solutions that support new product blue gases), as well as nuclear with and potential increases and/or
and service offerings, commodity built-in flexibility, and existing and decreases in energy demand;
retail, demand management, future energy storage forms, can the impacts of extreme events
customer experience optimization support the integration of variable on operations; changes in rainfall
and the provision of competitive renewable electricity generation. and snow levels with a potential
outcomes have become key These technologies can quickly increase and/or decrease in
components of utilities’ strategies. compensate for dips in solar or wind hydroelectric generation; changes
Two-way communication enabling power supply, rapidly respond to in solar radiation and wind with a
monitoring and control of demand sudden increases in demand and potential increase and/or decrease
through smart meters, for example, support hydropower when there is in solar and wind generation; and
helps utilities balance needs.28 insufficient rainfall or pumping or changes in cooling water availability
Digitalization offers wider benefits, storage capabilities. with a potential impact on thermal
generation.33
TCFD Electric Utilities Preparer Forum 113 Effective disclosure across
the four TCFD areas
TCFD Electric Utilities Preparer Forum 123 Effective disclosure across
the four TCFD areas
This chapter considers PLACEMENT OF TCFD As advised by the TCFD, subject
each of the TCFD’s main DISCLOSURES to regulatory requirements,
recommendations and how In common with the Oil and Gas companies should seek to
Forum member companies are Preparer Forum, Electric Utilities provide climate-related financial
currently responding to them. Preparer Forum members note disclosures in financial filings,
Each section: that companies take different maximizing readership with the
approaches to the placement of widest audience. Current placement
• Summarizes the TCFD’s
TCFD disclosures across their approaches include integrating
recommendation;
different reporting documents and climate-related information, using
• Provide insights into channels. Currently, companies a TCFD “index table” to point
Forum members' current choose to present climate-related readers to useful information (see
approach to the TCFD information in the way that best Figure 2), and creating a separate
recommendation, reflects their approach to reporting, section devoted to climate-related
including, where possible, their regulatory context and audit disclosure.
the characteristics of requirements.
disclosures that are
particularly useful in
response; Figure 2:
EnBW’s TCFD-Index table
• Provides examples EnBW Integrated Annual Report 2018
of disclosures from
Forum members’
public disclosures that
illustrate possible ways
of responding to the
recommendation;
• Summarizes users’
perspectives on effective
disclosure.
TCFD Electric Utilities Preparer Forum 13GOVERNANCE 1. Illustrate how climate-related on governance structure, roles,
information flows between scope, number of meetings
TCFD RECOMMENDATION management and board- and board agenda items also
Disclose the organization’s level decision-makers and complement organigrams
governance of climate-related describe how key business (Figures 6 and 7).
risks and opportunities. decisions take climate change
considerations into account. 2. Illustrate the circumstances and
The TCFD recommends that way in which the board includes
companies: Disclosures should therefore climate change considerations
explain how staff keep the on its agenda and takes it
1. Describe the board’s supervisory/executive board into account in decision-
oversight of climate-related and relevant board committees making processes, including
risks and opportunities; abreast of climate-related those affecting management,
developments, including business planning, strategy
2. Describe management’s role regulatory changes in order to formulation, investments and
in assessing and managing adapt decision-making in light divestments (Figures 10 and
climate-related risks and of new information. This might 11).
opportunities. involve describing how material
climate-related environmental 3. Describe the profile and
capabilities of the board,
FORUM COMMENTARY and sustainability information
is routinely passed from indicating how it supports
Forum members operate mature and maintains the building of
corporate functions to the
governance processes, often these capabilities in order to
board and relevant committees.
based on national or global implement a climate-resilient
governance codes and frameworks. In Forum member companies, strategy, including information
As they have specifically designed a variety of corporate teams, about capacity building efforts,
strategies to realize the transition including risk, finance, such as training and expert
to a low-carbon economy, economics and legal, collect sessions.
Forum members are increasingly and hold climate-related
integrating climate change into information. This reflects the 4. Explain whether board-
governance, strategic, financial multidisciplinary nature of and senior executive-level
and operational decision-making climate change monitoring remuneration is linked to the
processes. and management that may company’s climate change
involve tracking energy policies, objectives and, if so, how
Where it is clear that companies those objectives are tracked
carbon prices and regulation,
have already integrated climate and assessed, for example
assessing risk and estimating
considerations into governance through key performance
financial impacts of climate
processes, disclosures could indicators (KPIs) or metrics
change. Disclosures are useful
describe the degree of integration disclosed in response to the
where they explain how teams
and how companies have TCFD’s recommendations
monitor and manage climate
specifically modified standard on metrics and targets.
information across corporate
processes to address/manage Where remuneration is linked
functions and pass it to the
climate change. to KPIs and metrics and
board and relevant committees
In the case of governance, preparer in order to inform decision- targets, cross-referencing
views on the characteristics of making. will make disclosures more
useful information align with those understandable and coherent
Forum members typically (Figures 8 and 9).
of users and include details that:
demonstrate this in disclosures
through organigrams that show 5. Explain shared responsibilities
organizational structure and where electric utilities are partly
lines of reporting between the state owned so that investors
board and management teams can understand the decision-
(Figures 3-6). Additional details making process and allocation
of voting rights.
TCFD Electric Utilities Preparer Forum 14Examples
Figure 3: Enel’s governance model to tackle climate change
Enel Sustainability Report 2018
enel’s goVernAnce model
to tAckle climAte chAnge MAIN
CLIMATE-RELATED
FUNCTIONS
Board level oversight
Climate strategy oversight
and Board of Directors
Chairman coordination
Climate issues oversight
Corporate
Control and Risks (risks, planning and
Committee Governance
Board of Directors and Sustainability disclosure)
Committee
Definition and oversight of
the sustainable business
C hie model towards leading
f E xe c u t i ve energy transition
Officer
Management level
Holding Global Service Global Business Regions Definition of the Strategic
Functions Functions Lines and Countries Plan, in which climate-related
priorities are set
• Administration, • Procurement • Enel Green Power • Italy
Finance and Control • Digital Solutions • Thermal Generation • Iberia Managing climate-related
• Innovability • Infrastructure • Europe and risks and opportunities,
• Health, Safety, and Networks Euro-Mediterranean
while also setting targets
Environment • Enel X Affairs
and actions to promote the
& Quality • Global Trading • South America
energy transition
• Audit • North and Central
America
• Africa, Asia
and Oceania
Granting expense approval
aligned to Enel’s climate
goals
Group Investment Committee
Sustainable value created 87
TCFD Electric Utilities Preparer Forum 15Figure 4: EDP’sORGANIZATION
SUSTAINABILITY sustainability governance structure
EDP Sustainability Report 2018
GENERAL AND
SUPERVISORY BOARD
ENVIRONMENT AND
EXECUTIVE BOARD OF DIRECTORS
SUSTAINABILITY BOARD
CORPORATE GOVERNANCE
AND SUSTAINABILITY
COMMITTEE
SUSTAINABILITY SUSTAINABILITY PREVENTION AND
COMMITTEE DEPARTMENT SAFETY COMMITTEE
BUSINESS SUSTAINABILITY HEALTH AND
UNITS AREAS SAFETY AREAS
Corporate body Corporate entity Other statutory bodies Central structure Business units
Functional reporting/policies and strategies alignment Hierarchic reporting Participates Supports
TCFD Electric Utilities Preparer Forum 16Figure 5: CLP’s sustainability governance structure
CLP website
TCFD Electric Utilities Preparer Forum 17ENVIRONMENTAL AND SOCIETAL INFORMATION – HUMAN RESOURCES
Appendices and correspondence tables
3.8.3 TCFD RECOMMENDATIONS
Figure 6: EDF’s governance structure for climate-related risks and opportunities
In addition to section 3.2.1 “Committed to climate action”, this section summarises climate change governance and presents a concordance table between the different
sections of this Reference Document and TCFD recommendations.
EDF Reference Document 2018
Risk identification Governance
and management
The process of identifying and
prioritising risks, both at EDF Group
The Board of Directors and its
various committees examine the
3.
level and entity level, takes into risks (primarily by mapping Group
account climate change-related risks) and opportunities arising from
risks, including existing and climate change, as well as their
emerging regulatory risks. We impact on the Group’s strategy and
incorporate the identified risks into business activities.
our general risk control processes.
The Sustainable Development
Department is responsible for issues
relating to climate change,
including the assessment and
Defining management of climate change-re-
the strategy lated aspects, in partnership with
the relevant Group departments,
Identified climate change-related particularly in the SD Committee.
risks and opportunities have an This responsibility is part of the
impact on EDF Group’s strategy, strategic management of all CSR
particularly as regards developing issues exercised by the Strategic
products and services for the Social Responsibility Committee
various subsidiaries, implementing chaired by a member of the
measures to adapt and mitigate Executive Committee.
these risks, research and develop-
ment investment and Group
operations.
The Executive Committee reviews
the emissions balance annually in
the light of the Group’s decarboni-
sation trajectory.
Settings
goals
Goals are set as part of the strategy
defined by the Group, which
include reducing direct emissions to
30 Mt CO2 by 2030, and achieving
carbon neutrality by 2050. Key
indicators are monitored to assess
the Group’s environmental and
climate performance (direct and
indirect emissions, water consump-
tion, etc.), to make the strategy
adapt accordingly and to identify
potential emerging risks.
Figure 7: CLP’s disclosure of the frequency with which teams inform board committees about climate change issues
CLP Annual Report 2018
EDF I Reference Document 2018 219
Meetings and Attendance
The Committee meets as frequently as required but not less than twice a year and any Committee Member may call a meeting.
Between 1 January 2018 and the date of this Report, the Committee met four times (including three times in 2018 and once in
2019). The following table provides an overview of how the Committee spent its time during the period:
2018 2019
February August December February
Sustainability Reporting / Indices performance ✓ ✓ ✔
Community investment activities ✓ ✔
Climate change and other sustainability risks ✓ ✓ ✔
Health, Safety, Security and Environment ✓ ✓
TCFD Electric Utilities Preparer Forum 18Figure 8: Enel’s disclosure of employee incentive systems relating to climate change
Enel Annual Report 2018
The company’s remuneration policy includes related to products and/or services for the
various mechanisms aimed at making energy transition within the Enel X Global
progress towards the energy transition, and Business Line;
specifically:
• a long-term variable component that,
• a short-term variable component (or beginning in 2018, includes a climate-
MBO) that may include objectives related related target for the reduction of CO2
to the specific function of each manager emissions per kWheq for the Enel Group
involved. This may, for example, include over the next three years, which accounts
objectives tied to the development of for 10% of total long-term variable
renewable energy for managers within the remuneration.
Enel Green Power Global Business Line, or
Figure 9: Iberdrola’s disclosure of how it integrates climate metrics into executive remuneration policies
Iberdrola Sustainability Report 2018
The Director Remuneration Policy implements, financial, operational and sustainability
among other things, the structure of the aspects. Each Annual Remuneration Report
remuneration of the directors for their specifies the objectives to which the
activities as such and the structure of the annual variable remuneration of executive
executive directors’ remuneration for the directors is tied. The 2017-2019 Strategic
performance of their executive duties, based Bonus approved by the shareholders at the
on a series of parameters that are in line with General Shareholders’ Meeting describes the
the standard remuneration of comparable multi-annual remuneration system relating
companies. The reference parameters to the achievement of long-term objectives,
are contained in the current Director including the reduction of CO2 emissions.
Remuneration Policy and cover economic/
Figure 10: Iberdrola’s disclosure of the roles and responsibilities of the board in overseeing climate change
Iberdrola Policy Against Climate Change
The Board of Directors of IBERDROLA, S.A. a position of leadership in the fight against
(the “Company”) is vested with responsibility climate change, to promote a corporate
for formulating strategy and approving the culture focused on promoting awareness-
corporate policies of the Company, and for raising among all of its stakeholders
organising the internal control systems. It regarding the magnitude of this challenge
approves this Policy against Climate Change and the benefits associated with resolving
pursuant to the provisions of the Purpose it, identifying specific actions in the area of
and Values of the Iberdrola group, aware of its mitigation and adaptation. The Company’s
commitment to the environment generally and leadership commitment is consistent with
to the fight against climate change particularly. the goals of the Paris Agreement, with goal
thirteen of the Sustainable Development
1. PURPOSE Goals (SDGs) approved by the United Nations,
Climate change is one of the most important and with an ambitious and efficient focus on
challenges that humanity must face in the the process of implementation thereof. The
21st century. The use of fossil fuels has Company thus wishes to contribute actively
caused a considerable increase in greenhouse and decisively to a low-carbon and sustainable
gas emissions, which have accelerated global future, minimising the environmental impact
warming. The Company and the companies of all its activities and promoting the adoption
belonging to the group of which the Company of whatever actions are within the Group’s
is the controlling entity, within the meaning reach for such purpose, an effort that must
established by law (the “Group”), recognise be compatible with social and economic
the seriousness of the threat that such development through the sustainable
global warming entails, which must be faced generation of employment and wealth. This
in a collective and coordinated manner by Policy against Climate Change is formalised
governments, multilateral agencies, the private to articulate and disseminate the Group’s
sector and society as a whole. Along these commitment with regard to climate change.
lines, the Company commits to assuming
TCFD Electric Utilities Preparer Forum 19Figure 11: Enel’s disclosure of management-level responsibilities related to climate issues
Enel Annual Report 2018
ENEL’S ORGANIZATIONAL MODEL FOR MANAGING CLIMATE-RELATED ISSUES
Enel has a management team in which climate- • Regions and Countries (i.e. Italy, Iberia,
related responsibilities have been assigned Euro-Mediterranean Affairs, South America,
to specific functions that help guide Enel’s North and Central America, Africa, Asia and
leadership in the energy transition. Each area is Oceania) are responsible for promoting
responsible for managing the climate-related decarbonization and guiding the energy
risks and opportunities of relevance to that transition towards a low-carbon business
area: model within their areas of responsibility.
The Europe & Euro-Mediterranean Affairs
• Holding company functions (i.e. function is responsible for defining the
Administration, Finance & Control; Audit; Group’s position on climate change, for low-
Innovability; and Health, Safety, Environment carbon policies, and for the regulation of
& Quality) are responsible for analyzing international carbon markets within Europe.
the scenarios and for managing the
strategy and financial planning process In addition, Enel has established the following
aimed at promoting renewable energy, the two management committees chaired by the
decarbonization of the energy mix, asset CEO, the responsibilities of which include
digitalization, and the electrification of climate-related issues;
energy demand;
• the Group Investments Committee: this
• Global service functions (i.e. Procurement Committee approves investments related
and Digital Solutions) are responsible to business development. The Committee
for implementing sustainability and is also responsible for ensuring that
climate change related criteria in supply all investments are fully in line with the
chain management and fostering the Group’s commitment to promoting a low-
development of digital solutions to support carbon business model and achieving full
the implementation of technologies decarbonization by 2050. The Committee
enabling the fight against climate change; is made up of the heads of Administration,
Finance & Control; Innovability; Legal &
• Global Business Lines (i.e. Enel Green Corporate Affairs, and Procurement, as well
Power; Thermal Generation; Trading; as the regional heads and the heads of the
Infrastructure & Networks; and Enel X) are various Business Lines;
responsible for developing activities related
to the promotion of renewable energy • the Group Risks Committee: the objective
generation, the optimization of thermal of this Committee is to ensure that the
capacity, the digitalization of the electric organizational structures involved in
grid, and the development of enabling managing operating risks are in line with
solutions in the energy transition and the business strategies and objectives,
fight against climate change (e.g. electric while engaging management in strategic
mobility, energy efficiency, efficient lighting decisions concerning risk policy,
and heating systems); management and control.
TCFD Electric Utilities Preparer Forum 20STRATEGY Finally, the TCFD asks companies
TCFD RECOMMENDATIONS
to describe the resilience of their
The TCFD divides its STRATEGY A AND B
organization’s strategy, taking into
recommendation on strategy into consideration different climate- Disclose the actual and potential
three parts (A, B and C). The first related scenarios. impacts of climate-related
recommends that companies risks and opportunities on the
disclose the climate risks and This section considers the first organization’s businesses,
opportunities identified and the two parts of the recommendation strategy and financial planning
timeframes over which they expect together so as to provide a where such information is
them to materialize. The second comprehensive picture of the material.
recommends that companies risks and opportunities Forum
describe the impacts of those members have identified as well The TCFD recommends that
risks and opportunities, particularly the associated impacts on strategy, companies:
as they affect the organization’s businesses and financial planning.
1. Describe the climate-related
businesses, strategy and financial
risks and opportunities the
planning.
organization has identified
over the short, medium and
long term;
2. Describe the impact of
climate-related risks and
opportunities on the
organization’s business,
Figure 12: Types of transition and physical climate-related risks
strategy and financial
WBCSD CEO Guide to Climate-related Financial Disclosure planning.
CLIMATE-RELATED RISKS
Policy and legal Technology
Increased pricing of GHG emissions Substitution of existing products and services with lower emissions options
Enhanced emissions reporting obligations Unsuccessful investment in new technologies
TRANSITION RISK
Mandates on, and regulation of, existing products and services Costs to transition to lower emissions technology
Exposure to litigation
Market Reputation
Changing customer behavior Shifts in consumer preferences
Uncertainty in market signals Stigmatization of sector
Increased cost of raw materials Increased stakeholder concern or negative stakeholder feedback
Acute Chronic
PHYSICAL RISK
Increased severity of extreme weather events such as cyclones and floods Changes in precipitation patterns and extreme variability in weather patterns
Rising temperatures
Rising sea levels
TCFD Electric Utilities Preparer Forum 21Figure 13: Types of climate-related opportunities
WBCSD CEO Guide to Climate-related Financial Disclosure
CLIMATE-RELATED OPPORTUNITIES
Resource efficiency Energy source Products and services
Use of more efficient modes of transport Use of lower emission sources of energy Development and/or expansion of low
Use of more efficient production and Use of supportive policy incentives emission goods and services
distribution processes Use of new technologies Development of climate adaptation and
Use of recycling insurance risk solutions
Participation in carbon markets
Move to more efficient buildings Development of new products or services
Shift toward decentralized energy generation through R&D and innovation
Reduced water usage and consumption
Ability to diversify business activities
Shift in consumer preferences
Markets Resilience
Access to new markets Participation in renewable energy programs and adoption of energy
Use of public-sector incentives efficiency measures
Access to new assets and locations needing insurance coverage Resource substitutes/diversification
TCFD Electric Utilities Preparer Forum 22FORUM COMMENTARY
Climate-related risks and opportunities for the electric utilities industry
The introduction and context provided in this report describe the transition and physical climate change-related
risks and opportunities that potentially affect the electric utilities industry. Table 1 below summarizes some
transition risks and opportunities that affect particular business lines within the electric utilities industry, together
with the expected impact on businesses, strategy and financial planning.
Table 1: Climate-related transition risks and opportunities facing the electric utilities sector and the expected impact
on businesses, strategy and financial planning
TRANSITION RISKS, OPPORTUNITIES AND IMPACTS
UTILITIES
BUSINESS LINE Impacts on businesses, strategy and financial
Risks and opportunities
planning
Generation Climate and energy policy changes: • Decarbonization of generation capacity
• Carbon pricing • Investment that shifts the portfolio to renewables
• Limitations on or taxation of carbon emissions and other low-carbon generation technologies,
• Rising costs of fossil-fueled generation, increasingly demonstrating alignment with longer-term
displacing it in the merit order34 emissions reduction trends
• Renewable energy incentives • Development of new services for lower carbon
• Energy efficiency incentives baseload
• E-mobility schemes (including electric vehicle
charging regulation)
• Insufficient regulatory and policy frameworks to drive
deployment of investments and financing
• Lack of social acceptance of specific policies (e.g.,
carbon taxes)
Technology advances:
• Technology cost reduction in renewables and storage
• Early phase out of conventional assets leading to
stranded assets
Distribution Distribution re-design: • Investments in expanding and upgrading
• Demand for new distribution assets to connect networks to become more efficient, smart and
renewable production with demand flexible including through management services
• A smarter and reinforced distribution grid will play an and digitalization
important role in integrating new capacity for both
utility-scale and decentralized sources, for example,
decentralized solar PV and flexibility sources, as well
as managing congestion and dispatch, security of
supply and grid resilience issues.
Market design:
• Risk of inadequate market design to accommodate
changing distribution grids, new capacity,
decentralization, etc.
Customer Consumer changes: • Development of new products and services,
services • Changes to consumer demand for green products including home energy audits, energy tracking
and services systems and demand-side management systems
• Opportunity to improve energy efficiency and benefit that can increase flexibility (e.g., smart meters)
from associated incentives through consumer • Energy-efficiency measures achieved through
engagement consumer engagement and new adaptive product
• Economy-wide decarbonization requiring a drastic and service offerings
increase in electrification, particularly for heating and • Exploration of new opportunities for electrification
transportation and electric mobility
• Increased demand for electricity during off-peak times • Increasing partnerships with technology experts
due to more competitive costs of electric vehicles
TCFD Electric Utilities Preparer Forum 23The electric utilities industry regards physical risks as longer-term risks, although some are starting to have a
material impact in the near term. Table 2 summarizes some physical risks and opportunities that affect electric
utilities and gives some strategic response examples.
Table 2: Climate-related physical risks and opportunities facing the electric utilities sector and the strategic
response examples
UTILITIES PHYSICAL
BUSINESS LINE
Risks and opportunities Strategic response
Generation • Extreme weather events may impact generation • Detailed climate modeling studies to asses
assets vulnerability at a site level basis and identify
• Changing long-term climatic conditions (e.g., wind appropriate mitigation measures (e.g., specific
and solar radiation patterns, temperature) can affect resilience-improvement plans in vulnerable areas)
renewable and fossil fuel energy production • Decentralizing generation by locating generation
facilities closer to populated areas in order to
reduce reliance on long transmission lines vulner-
able to damage
• At a company level, geographic portfolio diversifi-
cation could reduce exposure to physical risks
Distribution • Extreme weather events may impact distribution • Reinforcing distribution networks to prevent or
networks reduce the damage from extreme weather events
• Evolving from “point-to-point” delivery to multi-
source, multi-load-center integrated networks
• Improving crisis management response and
business continuity plans at the operational level
• Appropriately insuring sites vulnerable to
disruption
Customer • Seasonal weather trends that affect aggregate power • Managing demand through smart technology-
services demand across particular geographies enabled solutions
• Using gas, nuclear, storage, pumped hydropower
and flexibility solutions to manage and respond to
volatility
In current disclosures, Forum opportunities in strategic choices, 3. Investment and divestment
members identify risks and activities and plans, which fall into activity to support strategic
opportunities, the timeframes three main categories: response, including evidence
over which the are expected to of investment in renewable
materialize (typically over the short 1. Innovation and opportunity development, use of financing
term (under 3 years), medium maximization, including instruments such as bonds
term (up to 5 years), and long term the development of new to support carbon reductions
(beyond 5 years) and the expected electricity products, consumer and energy efficiency, financial
impacts of or actual business solutions, and leveraging digital planning implications, etc.
responses to those risks and leadership (Figures 17, 18, 19, (Figures 24-32).
opportunities (Figures 14-16). 21, 22 and 24);
2. Risk management, including
In practice, Forum members analysis of external risk,
have already developed strategic management of energy
responses to the expected impacts demand and development
of the risks and opportunities of the skills needed for the
identified. Forum members reflect transition (Figure 22);
the impacts of the risks and
TCFD Electric Utilities Preparer Forum 24USER PERSPECTIVES • Identify the markets and advancement, policies and
jurisdictions that particular regulation, and changing market
Transition risk risks and opportunities are and consumer behavior).
Disclosures in response to most likely to affect and provide
the TCFD’s strategy A and B information at the asset level, • Detail, where possible, any
recommendations are useful where such as the total capacity of quantitative information on
they: assets and individual plants. changes to capital expenditures
(CAPEX), operational
• Explain the company’s • Explain the way in which the expenditures (OPEX) and
understanding of how the company defines short-, revenue as a result of actual or
policy landscape is changing, medium- and long-term risks anticipated policy changes.
potential implications and opportunities.
(connected to contracts, The information is useful, for • Explain the potential impacts
subsidies, etc.) and how they example, when assessing the associated with the risks
manage uncertainty and timeframe of investments and opportunities identified,
prepare internally for potential in new technologies or the including the impacts on
regulatory reforms. expected lifetime of current the company’s businesses,
assets (considering their strategy and financial plans and
resilience to technological how those impacts manifest in
decisions, plans or actions.
Physical risk • The impact of changing extreme weather disruption
For many users, assessing conditions on operations, already taking place.
companies’ longer-term resilience to particularly in geographies
physical risks is beyond their normal where those changes drive the • The impact of climate change
investment horizons. However, they uptake of new technologies. and chronic changes in weather
are interested in understanding the on demand patterns. How
following: • In regards to generation, the changes in demand might
impact of water availability on impact volatility and the trend for
• Granular information about the power plants, both in terms of energy and how this translates
geographical spread of assets, flood risk and the availability of into fluctuations in earnings
even at subnational levels. cooling water. (e.g., whether the changes are
Geographical diversification systemic or whether they can
diminishes physical risks • The extent of the impacts of expect reversals).
associated with one geography.
Examples
Climate change is one of the most material megatrends of our industry. How CLP responds to the risks and opportunities
Figure 14: CLP’s disclosure of its climate-related risks over short-, medium- and long-term time horizons
arising from climate change is discussed throughout the report, and the summary table below provides easy reference to the
relevant sections:
CLP Sustainability Report 2018
Risks and Opportunities
Medium to long term
Short term (0-1 year) Medium term (1-5 years) (5+ years)
Physical risks from extreme New regulatory requirements in Potential stranded fossil fuel
weather events relation to climate change assets
(also see the section below)
Transitioning to low-carbon energy Growing our non-carbon portfolio
Securing the skills and capability in Hong Kong to meet the to reach our Climate Vision 2050
required to implement our climate Government's decarbonisation targets
strategy targets
New products and services to help Energy management solutions to
our communities decarbonise enhance efficiency at a systemic
level, for instance in building
smart cities
Technologies to enhance the
performance of our renewable
assets
The Risk Management Report in the Annual Report further outlines how climate-related risks have been
integrated in CLP’s Risk Management Process.
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