EDF & Centrica lead the Tomorrow's Value Rating in the energy utility sector

Delivering affordable energy to consumers while also responding to significant environmental and social concerns presents a tricky balancing act for the world’s largest energy utility companies.  The new rating,  produced by Two Tomorrows, assesses the degree to which the world’s largest utilities are currently meeting this challenge. Thomas Krick, programme manager for the Tomorrow’s Value Ratings, summarises this challenge:

“Power generation causes a quarter of the world’s carbon emissions, as well as a whole range of other social and environmental impacts. Yet, there are still 1.6 billion people in the world without reliable access to electricity. Sustainable solutions to this dilemma require significant long-term investments. However, continuing uncertainties in regards to government policy are making this hard for utilities companies.”

The companies leading the Tomorrow’s Value Rating are EDF and Centrica, both with a comfortable lead over their competitors.  EDF stands out for demonstrating responsible business practices across a large number of operating markets, from employee consultation panels in Latin America, Vietnam and Thailand, to rural electrification projects in Morocco and Mali. It is also one of the few companies in the sector that has begun to monitor supplier performance on sustainability issues.

The Tomorrow’s Value Ratings aim to further the debate on sustainable business practice, recognise the leaders, and spur healthy competition by examining the largest companies in globally important industries. The ratings are based on an analysis of publicly available information.

The Tomorrow’s Value Rating of the world’s largest utilities companies results in the following ranking:

                                             
Anne Euler, who led the utilities research, highlights good governance as a driver of Centrica’s second place,

“Centrica demonstrates good performance across all of our assessment areas, but particularly shines with its excellent approach to sustainability-governance. It is living proof that clear allocation of responsibility for sustainability at the top of the organisation really helps to drive good practices.

“Centrica also offers a range of green tariffs, and has comprehensive consumer awareness raising programmes in the UK,” Euler continues.  “It could, however, provide more information on how these, and its other sustainability efforts, are rolled out across its international operations and supply chain”.

Affordability and accessibility of energy are two of the major issues raised by stakeholders. Although two thirds of companies in the sector recognise the need for transparency around pricing, E.ON is one of the few companies which discuss the relationship between energy prices for the consumer, fluctuating wholesale prices, company profits and investments to ensure supply security. A discussion of accessibility and affordability in a wider range of geographic markets is however only offered by EDF, where others discuss these matters they limit themselves to the highly regulated markets.

When it comes to environmental issues, climate change takes centre stage. Six of the ten companies in the rating have made specific quantified carbon-reduction commitments. EDF relies mainly on nuclear energy to achieve its targets, whereas Centrica and Scottish & Southern Energy aim to increase the percentage of renewables. E.ON describes its plans to develop a generation portfolio that consists to 50% of non-carbon emitting forms of power generation, thereby seeking to halve its emissions by 2030 compared to 1990.

Focusing on another area of the assessment, Thomas Krick highlights, “Engaging with stakeholders on non-financial issues has become a major pillar of responsible business. It involves understanding the dependencies between stakeholder groups and the company, identifying the concerns of these groups, and responding to them.

“The utilities sector only seems to be getting it partially right. The direct workforce, shareholders and customers are engaged by most companies, and European utilities also undertake some good quality engagement with local communities, governments and trade unions. In most cases, however, such good engagement approaches are limited to the most regulated markets, and not rolled out across all operating countries.”

Tomorrow's Value Rating challenges for the sector:

Delivering on targets: Evidence that ‘responsible policies’ translate into actual performance improvement is rare and only EDF, Centrica and Scottish & Southern set performance targets for more than a quarter of their main impacts.

Global responsibility: Increased activity in less regulated and developed countries heightens the requirement for the diligent local management of impacts. This does not just mean minimising negative impacts, but also includes efforts to contribute to the economic health of their operating locations.

Supply chain: As companies expand into less regulated markets, promoting adherence to social and environmental principles amongst its supplier base also becomes increasingly important.

Access to supply: As energy prices continue to rise, the security of supply to disadvantaged customers and to people living in remote areas will become an increasingly important topic.

Bold vision: There remains an opportunity for a utilities company to break the mould and emerge as a clear leader in sustainable power generation. However, given the absence of clear long term governmental guidance, long term planning security remains challenging and any company looking to make this step change would have to take a brave bet on what the future might look like.   

For full results and information on methodology, other sector ratings and associated benchmarking services, visit the dedicated Tomorrow's Value Rating website.

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[1] China Southern Power Grid and State Grid make little information on their sustainability approach available, making it impossible for stakeholders to assess the companies’ performance. The Tomorrow’s Value Rating promotes transparency as a building block of corporate responsibility and uses publicly available information for its assessments.