Challenging a US energy firm on exiting coal

Phasing out coal generation is essential to remaining within temperature targets aligned to the Paris Agreement and achieving net zero. For energy providers, this can present an uncertain path. This case study outlines our engagement actions with an energy firm on its decarbonisation strategy and targets for renewable energy.

 

Need to know We engaged a large retail energy provider in the US, which had demonstrated good progress in reducing emissions, with SBTi-aligned decarbonisation targets in place since 2015 It appears that the company does not include purchased energy in its disclosure of scope 3 emissions, leading to a possible misreporting – or non-reporting – of most of its emissions. In addition, it is unclear if the company will reach its SBTi verified 1.5°C 2025 targets as it will not have fully exited coal before 2030 We are pushing the company to go through to the SBTi verification process for net-zero commitment to ensure their decarbonisation strategy is aligned with the Paris Agreement and, if not, to take actions to review its strategy

 

Exiting coal power

The Net Zero Emissions by 2050 Scenario (NZE) from the IEA shows a pathway for the global energy sector to achieve net-zero CO2 emissions by 2050. It projects unabated coal generation being completely phased out by 2030 in advanced economies and by 2040 globally. Under this scenario, countries and companies not aligning with these timelines risk contributing to an overshoot of temperature targets committed to under the Paris Agreement – and could become exposed to the economic risks derived from stranded coal assets.

Exiting coal power in advanced economies is not without obstacles, as demonstrated by one of our engagements with a US energy provider. In the following case study, we show the importance of qualitative and quantitative research in pushing for decarbonisation plans to be verified through the Science Based Targets initiative (SBTi). The SBTi drives ambitious climate action in the private sector by providing a clear process for organisations to set science-based emissions reduction targets. We also highlight the risk of corporate misreporting on emissions and explain how we have sought confirmation from the firm about the percentage of renewable energy it intends to secure in order to phase out coal.

 

Engagement background

We engaged a large retail energy provider in the US, which had demonstrated good progress in reducing emissions, with SBTi-aligned decarbonisation targets in place since 2015. The company claims to be a sustainability leader and that it is investing in cleaner sources of energy for both domestic and commercial clients. It has publicly announced plans which outline a clear path to decarbonisation, including crucial plans to exit coal.

In addition, there are programs in place for coal combustions residuals (CCRs), typically coal ash, which mitigates the need for additional coal mining. CCRs are produced primarily from the burning of coal in coal-fired power plants and may be recycled into products like concrete or wallboard. CCRs provide environmental benefits such as reduced greenhouse gas emissions, less need for disposing in landfills, and reduced use of other materials.

 

Engagement action

Our stewardship team’s climate engagement strategy is aligned with the Oxford Martin Principles, which focus on net-zero commitment, a profitable net-zero business model and quantitative medium-term targets. The principles state a crucial test of any investment strategy is whether it drives or hinders bringing about net zero emissions before global temperatures exceed 2°C. Our analysis revealed inconsistencies in the company’s decarbonisation strategy, especially regarding the company’s plans for coal, and we sought to confirm its overall exposure to fossil fuel and whether the company was not increasing its production or capacity of?thermal coal. According to the Intergovernmental Panel on Climate Change (IPCC), phasing out coal from the electricity sector is the single most important step to align with 1.5°C. The UN intergovernmental body has specified that global coal use in electricity generation must fall by 80% below 2010 levels by 2030, and OECD nations should end coal use entirely by 2030.

 

Engagement outcome

Our engagement highlighted the need to continue to push the company on its decarbonisation strategy. It is shifting its business model from electricity production to electricity retail, which will have the effect of moving the majority of its carbon emissions from scope 1 to scope 3 upstream. However, it appears that the company does not include purchased energy in its disclosure of scope 3 emissions, leading to a possible misreporting – or non-reporting – of most of its emissions. In addition, it is unclear if the company will reach its SBTi verified 1.5°C 2025 targets as it will not have fully exited coal before 2030. Finally, we have not yet had confirmation on what percentage of renewable energy will be purchased.

 

Next steps

We are pushing the company to go through to the SBTi verification process for its net-zero commitment to ensure its decarbonisation strategy is aligned with the Paris Agreement and, if not, to take actions to review its strategy, especially regarding its coal exiting plan. In the mean time, we have revised the company’s targets in our ITR tools, which has resulted in an increase of the company’s temperature alignment. We have also strongly emphasised the need to secure renewable-energy supply, and have requested reported figures and targets so that we can monitor progress.

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