Sustainability Within the Utility Industry

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A presentation about AEP\'s journey, the business of sustainability and lessons learned.

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Sustainability Within the Utility Industry

  1. 1. Sustainability in the Utility Industry: AEP’s Journey Sandy Nessing Managing Director, Sustainability American Electric Power June 20, 2012 1
  2. 2. Who We Are – AEP AEP Generation Capacity Portfolio Coal/Lignite Gas/ Nuclear Other – (hydro, Oil wind, solar, energy efficiency, demand response etc. .) 63% 24% <6% >7% Generation capacity reflects 2012 expectations 2
  3. 3. AEP’s Footprint -- 2011 3
  4. 4. AEP’s The Business LessonsExperience of Learned Sustainability “Putting off an easy thing makes it hard. Putting off a hard thing makes it impossible.” -- George Claude Lorimer 4
  5. 5. AEP’sExperience The road traveled is not always a smooth one. 5
  6. 6. AEP’s Journey to Integrated Reporting2004 2006 2008 20092010 2011 6
  7. 7. The Stakeholder Revolution….• Everyone is a stakeholder• Expectations are high – Profits and positive societal contributions• Transparency reigns supreme – Information is power and you control the story – Eliminate misperceptions – Build trust, credibility• It becomes part of the way you do business 7
  8. 8. …Includes a Shareholder Revolution• Record number of resolutions filed in 2011• Governance expected to be a top issue in 2012• Environmental, social resolutions increasing• Corporate political spending a focus – Advocacy, lobbying activities• Commodity, construction, compliance risks to dominate• Shareholders want companies to be more transparent, proactive on broader range of issues to protect shareholder value 8
  9. 9. 9
  10. 10. Why Should Companies Report? There are many benefits to reporting – some quantifiable, some not.• Allows you to tell your own story• Engages skeptics and critics• Drives change inside, outside of company• Identifies risks, opportunities• Attracts capital• Increases shareholder value• Demonstrates and drives leadership• Drives internal capacity for continuous improvement• Supports recruitment, retention of best talent• Builds customer loyalty 10
  11. 11. The Business of Sustainability Shareholders have a valid interest and a stake in a company’s total performance. 11
  12. 12. Sustainability is a Bottom-Line Issue That People Really Do Care About• The CEO• The Board of Directors• Employees, retirees• Customers• Institutional investors, lenders, credit rating agencies• Environmental groups and other advocates you may only encounter in a courtroom or hearing room• Prospective employees• The media• Your ‘green’ customers• Labor leaders• Regulators, policy-makers, legislators• (Your friends, family) 12
  13. 13. It’s All About How You Act• Top reasons for acting sustainably: • Drives innovation • Grows revenues • Started as risk management platform; now a growth platform • Avoid shareholder resolutions • Improve business efficiency • Capture bottom-line cost reductions • Eliminate/reduce visits from regulators • Focus on value chain – how you impact external environment • Increased transparency up and down supply chain • To sell something green, you have to sell something of value to your customers 13
  14. 14. What’s At Stake?• Profits• Customers• Public support• Competitiveness• Reputation• Trust and credibility• Risk management• License to operate• Opportunities for innovation and growth 14
  15. 15. Why Sustainability Belongs on the Balance Sheet• Capital markets need information – at the right time – that is clear and trustworthy• The financial crisis raised fundamental questions • Were companies and markets as transparent as they could have – or should have – been?• Was there systemic risk that was masked? – What were the warning signs that were missed and why? – Could more transparent and complete reporting have connected the dots sooner? 15
  16. 16. Investors Paying Attention More and More• Proliferation of ratings and rankings – DJSI, CDP, Goldman Sachs, Bloomberg, Maplecroft• Analysts and investors seeking more ESG data, not less• Lack of standardization of surveys, methodology – Resource intensive, comparability challenging• The birth of the GISR – Understanding what is being measured and why – Bring convergence around core principles, content• How material is performance to financial results? – The ROI of sustainability 16
  17. 17. Nonfinancial Performance Tied to Financial Health• Taking holistic view allows you to integrate risk, corporate governance and sustainability into the strategic & operational management of the organization.• This alignment of priorities demonstrates how your strategy has responded to material issues.• Value creation doesn’t come just from within; it is influenced by: – The external environment; – The relationships that we have; and, – The availability, quality and affordability of management resources, such as financial and human capital. 17
  18. 18. AEP’s Material Issues Defined• Issues material to our sustainability are those that: – Have or may have significant impact on the company’s finances or operations. – Have or may have significant impact on the environment or society, now or in the future. – Can substantially influence the assessments, decisions & actions of stakeholders and shareholders. We track material issues & sustainability performance with the material risks monitored by the company. 18
  19. 19. LessonsLearned “If you can’t find a path with no obstacles, it probably doesn’t lead anywhere.” 19
  20. 20. Lessons Learned Along the Way• Support from the top – CEO, Board of Directors – critical• Transparency is painful at first• Be honest and candid – don’t beat around the bush• Don’t try to do it all at once – especially GRI – better to start small• Define sustainability for your organization• Communicate often to internal and external stakeholders• Think about what is relevant for your stakeholders• Stakeholder engagement vital – Informs goal-setting and decision-making around business strategy – Builds credibility, trust – They know when you’re being forthcoming or evasive – you can’t hide – Leads to collaboration, partnership – Use a third party facilitator for stakeholder engagement• Listen with positive intent – Don’t assume anything – negative or positive• Get an external sounding board• Audits• Show me, don’t tell me! 20
  21. 21. You Need A Strong Foundation & Clear Expectations of Performance 21
  22. 22. Questions?Sandy Nessing – Managing Director, Sustainability smnessing@aep.com Twitter: @Watts4U www.AEPsustainability.com 22

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