Welcome to Moral Money. This week we have:
An interview with the head of Dominion Energy
Renewable energy changes at Credit Suisse
Employee activism poses problems for companies
A new climate in coal country?
When Tom Farrell, in 2006, became chief executive officer of Dominion Energy — one of America’s largest utilities — the Virginia-based company was the type of entity that sparked environmentalists’ fury. About 52 per cent of its electricity generation came from coal — which was perhaps no surprise given the crucial role that coal has played in Virginia’s history — and the rest emanated from natural gas, with a small contribution from nuclear plants.
How times change. Today, Mr Farrell announced that he was stepping aside as CEO, after 25 years at the group, to hand day-to-day executive control to three of his lieutenants. However, he is retaining the role of chairman and is committing himself to crafting the company’s strategy to “go green” — ie become carbon neutral by 2050. Moreover change has already got under way: just 12 per cent of Dominion Energy’s electricity generation now comes from coal and this is expected to drop to almost nothing in the coming years. Meanwhile, renewable energy (ie wind and solar) supplies 5 per cent of electricity and is on track to grow to more than 30 per cent by 2035.
“Five years ago we had zero solar power, and now we are the third-largest utility company owner of solar in the United States and very soon we will be the second-largest,” Mr Farrell told the Financial Times. Indeed measured overall, almost half of all electricity at the company comes from zero-carbon sources at present; this was expected to rise to about 70 per cent in 2035, Mr Farrell said.
The company bought Virginia’s offshore wind farm rights for a mere $1.6m in 2013. Mr Farrell said the company was building “the largest offshore wind farm in the western hemisphere” which would have a capacity of “nearly 2600 megawatts”.
This will not entirely appease green critics. Mr Farrell told the FT that natural gas, for example, was likely to remain a core feature of Dominion Energy’s operations for some time.
“Battery storage is the answer to this problem . . . and we are years and years away from being able to store sufficient electricity from renewable sources at scale that will run a modern economy,” he said, arguing that this meant we would partly “need to run the system off natural gas for some time”.
However, it highlights three important points. The first is the degree to which even some traditional companies in the US’s red states are now moving to embrace an environmental, social and governance (ESG) agenda, be that under pressure from shareholders, concern about the risk of stranded assets or genuine conviction (or all three). “We are [now] a leader among utilities in clean energy and we are going to be the leader in the future,” said Mr Farrell, who argued that “we have changed but it has been a reasoned pace rather than an overnight conversion”.
Second, the shift also shows how companies are running ahead of federal policies. The Virginia legislature has recently introduced a wave of rules that aim to raise environmental standards. However, Mr Farrell told the FT that Dominion Energy started embracing wind and solar long before local politicians jumped on to a green platform, and the company’s shift was occurring irrespective of the Trump administration’s antipathy towards ESG.
The third striking point is how the economics of renewables is changing. One reason why Dominion embraced solar five years ago was that it finally became cost-effective, Mr Farrell said. And one reason it jumped into wind farms was that it managed to buy Virginia’s offshore wind farm rights cheaply. ESG investors should take note: the climate is shifting, even in coal country. (Gillian Tett)
Busting silos, Credit Suisse merges oil and renewables teams
If you want another sign of the shifting climate, take note of this: Credit Suisse on Thursday unveiled sweeping changes to its structure to reduce costs and prepare the bank for its next chapter under new chief executive Thomas Gottstein.
Among the changes, Credit Suisse said it would combine oil, gas, utilities and renewables teams into its energy and infrastructure group.
The restructuring underscores that renewables cannot be viewed in isolation as oil majors increasingly turn to green energy sources this year. The new group will be headed by Jonathon Kaufman and Tom Greenberg, who is also chair of the bank’s ESG advisory group.
It is not surprising that banks are taking renewable energy more seriously. The pandemic and the oil glut has forced the oil majors to take renewable power more seriously. In September, BP will update the market with detailed plans about its renewable energy path forward, chief executive Bernard Looney told Moral Money in May. It’s a theme that Moral Money and our colleagues at Energy Source will keep following this year. (Patrick Temple-West)
Employee activism prompts changes in corporate boardrooms and beyond
What should companies do in response to employees who want to protest in support of the Black Lives Matter movement? Coca-Cola, an American multinational beverage company, found itself answering this very question as employees began to organise marches starting at the beverage producer’s headquarters in Atlanta, Georgia, last month.
More than 500 employees marched in Atlanta’s streets to support a Georgia hate crime bill that the state adopted last month. The legislation stemmed from an overwhelming corporate outcry and marches led by Coca-Cola employees.
Coca-Cola supported their efforts by supplying water and parking and personally reaching out to the leaders to offer “whatever support is needed”, said Lori George Billingsley, head of Coca-Cola’s diversity and inclusion. Zack Wepfer and Jeff Reine, leaders of the Coca-Cola marches, told Moral Money the company’s support was “incredible”.
Companies increasingly need to have a plan for employees who want to march, and those that struggle with their human capital management expose themselves to shareholder angst, attorneys at law firm Freshfields said in June. Tin-ear companies increase the likelihood they will face shareholder petitions during proxy season and they could even face customer boycotts, Freshfields said.
As the US heads towards the presidential election, some corporations have announced that they will make election day, November 3, a paid holiday. Employees are likely to hold their companies to the fire on activism efforts — a wave that looks to continue into the highly anticipated election. (Kristen Talman and Patrick Temple-West)
Can beetles take a bite out of the earth’s plastics pollution?
As it continues to ravage lives and livelihoods worldwide, Covid-19 has also decimated the battle against single-use plastics.
The plastics pollution problem is only going to get worse, HSBC said in a July 28 research note. NGOs around the world have seen a surge in ocean plastic waste over the past months, a direct correlation to the run the pandemic has put on personal protective equipment (PPE).
Desperate to arrest the plastics surge, the European Commission this month proposed a tax on plastic packaging waste, but the details are not finished and infrastructure needs to be co-ordinated across member states. In the US, some states have paused plastic bag bans because of the pandemic.
With no drastic drop in plastic use in sight, HSBC said there might be another way to mitigate the problem: have mealworm beetles eat plastic.
Have the bank’s analysts spent too much time in their gardens while working from home?
Actually, there is science behind HSBC’s report. Researchers at Stanford University have found that mealworms can safely consume toxic plastic in polystyrene, which is commonly used for packaging and is expensive to recycle. Mealworms in the experiment excreted about half of the polystyrene they consumed as tiny, partially degraded fragments and the other half as carbon dioxide, Stanford’s researchers said.
HSBC did not say if mealworms could be weaponised at scale to take a big bite out of the plastics problem. It is unclear if there are any businesses working on this. But with family offices, private equity and other deep-pocket investors pouring cash into impact investing, it is plausible that the plastic-eating bugs could find venture capital. (Patrick Temple-West)
To mark the relaunch of Energy Source, join Derek Brower, Anjli Raval and Myles McCormick as they discuss profit and power in the energy industry. This is the next in a series of events examining the world’s new economic reality in light of Covid-19 and major social and political change. Sign up and tune in on Wednesday August 5 from 12-1pm ET here.
Chart of the day
Coastal flooding is set to rise by about 50 per cent over the next 80 years and could threaten assets worth 20 per cent of global gross domestic product, according to a study that heightens concerns about the social and financial impact of climate change. Please read the full FT story from Thursday here.
Grit in the oyster
While many companies are taking extraordinary steps to pitch in for the greater good, that is only part of the story. Here’s a little corporate grit in the oyster.
Hundreds of corporate executives who have had their salaries slashed during this year’s economic downturn continue to take home big cash bonuses and equity grants, according to a report this week from CGLytics an Amsterdam-based executive pay data provider.
For the Russell 3000 companies, “we have not witnessed any companies making adjustments to those figures in light of the crisis, even for companies in hard-hit industries”, CGLytics said.
For example, Edward Bastian, chief executive of Delta Air Lines, has agreed to eliminate his base salary for six months, but he still got his 2019 cash and stock awards totalling $16m, CGLytics said.
The report, which followed an FT executive compensation investigation in June, sparked an outcry. “Investors hold the carrot that corporate executives respond to: money,” Shaunna Thomas, co-founder of advocacy group UltraViolet, told Moral Money. “Investors are bound to keep executives accountable for their actions and, if they don’t, it calls into question their own integrity.”
Check out the FT’s new special report on “investing in nature”, which was published this week. The articles include a piece from Moral Money’s Billy Nauman about ESG investors waking up to the biodiversity risks.
UK pension scheme pledges £5.5bn for green strategies (FT)
Satellite technology employed to track huge methane plumes (FT)
After three decades, most polluted US neighbourhoods haven’t changed (Reuters)