The Drive For Disclosure: What Matters, What Doesn’t and What May Be Transformational
Sandy Nessing Managing Director, Corporate Sustainability Environmental Leader Conference – June 22, 2016
American Electric Power www.aepsustainability.com
2
American Electric Power
American Electric Power www.aepsustainability.com
3
American Electric Power
American Electric Power www.aepsustainability.com
4
American Electric Power
American Electric Power www.aepsustainability.com
5
Feeling the Heat on Disclosure
American Electric Power www.aepsustainability.com
6
Layers of Disclosure Finding Alignment, Rationalizing What Matters
Reporting is increasingly important to satisfy stakeholders, manage risk, identify opportunity
Different stakeholders, different agendas, different concerns
Frameworks, standards, ratings, rankings – how do you know what’s important?
All reporting should compliment each other Layering sustainability performance with financial disclosures
Materiality is essential and needs to be flexible, time-bound and heavily dependent on context
American Electric Power www.aepsustainability.com
7
Materiality Focus
Central to disclosure, investment performance
Speaks language management, stakeholders understand
Eliminates the “noise” – keeps you focused on what really matters
Competitive advantage – it is a strategic business tool
Identifies trends on the horizon
Helps to navigate stakeholder expectations, risks, opportunities
Helps mitigate exposure to reputational and legal risks
Demonstrated positive correlation between sustainability and financial performance when differentiating between material and immaterial sustainability issues*
*Source: Harvard Business School’s 2015 study, Corporate Sustainability: First Evidence on Materiality
“An ocean of definitions, principles, criteria, concepts and applications”
American Electric Power www.aepsustainability.com
8
Clarifying Materiality Principles
American Electric Power www.aepsustainability.com
9
Why It Matters according to PwC Research (2015)
• 87% of investors expect to consider climate and/or resource scarcity in future investment decisions in the next 3 years
• 84% expect to consider social responsibility and/or good
citizenship in that same timeframe • Companies that efficiently direct resources to material
sustainability issues and achieve positive performance are more likely to gain an advantage
Investors are increasingly focused on Environment, Social, Governance (ESG) performance
10 Sustainability Reporting proactively telling AEP’s story
Support AEP’s growth strategy
Leverage data/information
Growing investor interest
Employee Engagement
Corporate Accountability Report
Reputation and branding
American Electric Power www.aepsustainability.com
11
Environmental Divestiture Movement
A number of environmental investment screens have been recently imposed through:
legislation governmental influence self-imposed investment restrictions
This can impact AEP and the utility industry as a whole Examples:
Equity Investors: Legislation in Norway & California Self-imposed restrictions: Axa and Allianz insurance companies Fixed Income Investors: CA Dept. of Insurance Carbon Initiative
American Electric Power www.aepsustainability.com
12
Shareholder Activism
ISSUE: Persistent misperceptions about AEP’s environmental performance Shareholder activism a sign that clarity was lacking Stakeholder meetings validated it but also revealed alignment of future direction New disclosure in 10-K on evolving business model New focus of Corporate Accountability Report to be more transparent on specific issues
AEP’s approach to engagement: • Be accessible - engage and resolve • Be responsive • Provide transparency • Follow through
Goals: To prevent divestiture of AEP shares and bonds, promote AEP’s story of progress and transformation, and broaden our relationship with all stakeholders.
American Electric Power www.aepsustainability.com
13
AEP: Proactive Shareholder Engagement
Shareholder Holdings Request Resolution
Connecticut State Treasurer on behalf of Conn. Retirement Plans &Trust Funds
174,000 shares Board-sanctioned report evaluating risks from increased competition (distributed generation, energy efficiency) to long-term growth and plan for addressing them. Threatened shareholder resolution.
No separate report Additional Form 10K disclosures Board statement to reflect discussions, acknowledge shareholder concerns
Aviva Investors Asset management business of Aviva plc, the U.K.’s largest insurer
279,000 shares Opportunity to discuss carbon asset risk with AEP, stranded assets, resource diversity, carbon pricing
Held a 45 minute call that included the CFO, Corporate Secretary and Vice President- Environmental Services. No further action needed
As You Sow Acting on behalf of activist shareholders
$2,000 AEP stock
Submitted Shareholder Resolution: Separate report, quantifying financial losses from stranded coal assets under various scenarios
Following several discussions, agreed to same disclosure as Connecticut Shareholder proposal withdrawn
American Electric Power www.aepsustainability.com
14
Transparency Makes A Difference
The Value of Reporting:
sustainability-related
shareholder requests since
2006
12 withdrawn
11
1 went to a vote
and failed
• Enhances reputation, relationships
• Supports/enhances business strategy
• Mitigates shareholder activism
• Transparency drives performance
• Recruitment/retention of employees
• Helps identify/mitigate supply chain risk
• Demonstrates responsiveness to shareholder concerns
• New partnerships, alliances
• Improved data leads to better accountability and
decision-making
American Electric Power www.aepsustainability.com
15
• Disclosure overload is real and growing.
• Materiality helps to navigate stakeholder expectations, risks, opportunities.
• Validate issues annually.
• Transparency enhances reputation, relationships
• Helps to manage risk, activism
Key Takeaways
• Not just about numbers anymore.
• Different stakeholders, agendas and concerns to address.
It really does make a difference.
• Refresh when material changes occur that affect your company and your stakeholders.
• Materiality is the link between sustainability and financial performance
American Electric Power www.aepsustainability.com
16
Questions?
Sandy Nessing Managing Director, Corporate Sustainability American Electric Power
www.AEPsustainability.com