Power firm AES publishes TCFD climate scenario report amid investor engagement

AES, the New York-listed power company, has published what it claims to be the first climate scenario report fully aligned with the recommendations from the Taskforce on Climate-related Financial Disclosures (TCFD).

In addition, the company has increased its goal to reduce its carbon intensity by 2030 to 70% from the 50% it first committed to when it announced its intention to adopt the recommendations of the TCFD in early April this year, a couple of weeks before its annual meeting.

Arlington, Virginia-based AES will focus on four areas to revamp its energy portfolio: energy efficiency, renewable energy, liquefied natural gas and energy storage.

The company says it used TCFD recommendations for multiple scenarios to conduct its analysis, incorporating third-party inputs from the International Energy Agency (IEA) and the Intergovernmental Panel on Climate Change (IPCC), including the 1.5-2°C scenario outlined in the Paris agreement. The company says the disclosures will help investors compare it to other companies’ performance against these targets.

At the annual meeting, initially, a shareholder proposal from Mercy Investment Services requesting such a report was due to be voted on, but the proposal was withdrawn between the publication of the proxy statement in early March and the date of the annual meeting in April.

The company had sought, unsuccessfully, to exclude the proposal using the SEC “no-action” relief process.

Mary Minette, Director of Shareholder Advocacy at Mercy, said in an email that the fund had withdrawn the proposal because the company had committed to publish the report.

On the quality of disclosure, she added: “my initial impression is that it looks to be one of the best I’ve seen, both in terms of the range of scenarios they considered and the way they used the scenarios to talk about how they view their business opportunities and challenges both now and in the future”.In fact, a similar agreement with Valero Energy produced a report in September this year which, while also following TCFD guidelines for scenario analysis, was announced with much less fanfare, although it does not include the same breadth of scenario analysis as the AES report. A report is also expected in 2019 from Ameren — the result of another agreement.
AES did exclude a shareholder proposal from the New York State Comptroller Thomas DiNapoli calling for the company to set time bound, quantitative, company-wide targets for the long-term reduction of greenhouse gas (GHG) emissions in line with the Paris agreement.

The company claimed this resolution was impermissibly vague and indefinite, with its arguments largely resting on the difficulty in defining what the term “pre-industrial” meant.

The Paris agreement specifies a goal to limit the increase in global average temperature to well below 2°C above pre-industrial levels.

Sustainability advocacy group Ceres welcomed the report, calling it an “important step forward for company and investor engagement”.

However, it also said it will continue to encourage AES to “set long-range greenhouse gas reduction goals, as many of its peers have, and limit reliance on – and exposure to the risks associated with – carbon-intensive resources such as liquefied natural gas”.

It also noted that AES was identified as “a systemically important company by investors participating in the Climate Action 100+ initiative” because of the company’s substantial GHG emissions.

Dan Bakal, director of electric power at Ceres said in an email: “AES’ 2030 goal is quite encouraging and investors are also looking for even longer term goals, such as 2040 or 2050, which several other companies have committed to.”