Key Findings

• Response rates to survey were low considering the contribution of the Electric Utility sector to carbon emissions. The Electric Utility sector is the most carbon intensive sector of the MSCI All World Developed Index – the sector is responsible for nearly a quarter of greenhouse gas emissions globally2. Only 42% of Electric Utilities responded to the CDP questionnaire.
• The CDP has had a cumulative effect on the responsiveness of FT500 Electric Utilities surveyed in previous years. The response rate has increased from 71% to 96%.
• Responses were highest in Kyoto Annex 1 countries and in the EU 25 and Japan, where regulations to control carbon emissions are more developed.
• Companies that had to comply with the EU Emissions Trading Scheme had the highest response rate at 67%. Although this level of disclosure is the highest it is somewhat disappointing that the remaining Electric Utilities did not respond given their legal responsibilities to report their emissions to the regulator in Europe. Some utilities have cited commercial sensitivity as the rationale for this lack of disclosure.
• Larger companies were more likely to respond and the largest companies were significantly more likely to measure and quantitatively report their emissions.
• Quantitative disclosures were low. Less than 30% provided data on emissions, although this was nearly 70% of those that chose to respond to the CDP. This is disappointingly low given the fact that most Electric Utility companies are required to report their actual emissions to regulators.
• Not a single Chinese Electric Utility provided quantification of their emissions. China is the world’s largest user of coal for power generation, and is currently responsible for nearly one fifth of the world’s emissions3.
• Responses lacked comparable statistics. Several made disclosures regarding investments, but most did not describe the type of investment (capital vs. operating expenditure), whether it was a part of business-as usual investment or in new technologies specifically designed to reduce emissions. Electric Utilities face difficult decisions regarding investments, especially given the significant sums involved due to the long term nature of the capital expenditure, and further transparency on this is to be welcomed.
• European companies were less carbon intensive than North American or Asian companies, which is largely due to the efficiency of European plants historically given their access to fuel resources. This has meant that, in part, European Electric Utilities may be better prepared than their peers from an emissions trading perspective.
• Few Electric Utilities would create Economic Value Added (EVA) if the cost of their emissions were financially recognised (using the TRUEVA measure). Only 6 of 25 companies assessed would have a positive TRUEVA.
• Some U.S. Electric Utilities could face costs equivalent to 7% of revenue if they had to reduce emissions by 25%, as proposed by new regulations instituted in California recently, on the basis of their emissions today.

Why did CDP commission the report?

The Carbon Disclosure Project (CDP) is a global initiative aimed at informing investors of the risks and opportunities presented by climate change, and to inform company management of the views of their shareowners regarding climate change. The Electric Utility sector is the most carbon intensive sector and therefore one of the first to the effects of environmental regulations and carbon pricing. The analysis carried out by Trucost for this CDP report highlights that, using a conservative estimate of the cost of reducing carbon dioxide emissions, costs equivalent to 7% of revenue could be at risk for the largest emitting Electric Utility companies if nothing is done to mitigate emissions. As a consequence, investors have a legitimate interest in comparing the emissions of the Electric Utility companies they invest in.

Report image: Quantitative disclosure

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