Sustainable Electric Power from a Responsible Investing Perspective

Abstract

Investors can play an important role in making sustainability considerations a strategic issue for corporate executives. The increasing availability of corporate sustainability data has led to investment approaches that consider sustainability metrics in investment processes. Investors incorporating environmental, social, and corporate governance (ESG) criteria to generate long-term competitive financial returns and positive societal impact – so-called socially responsible investors (SRI) or ESG investors – have experienced significant client growth. This chapter describes ESG investing and explores the extent to which financial performance and sustainability are compatible and even mutually reinforcing. The concept of materiality is discussed, illustrating the need to focus sustainability efforts on areas that have financial importance to a company. A perspective on the electric power industry through the lens of an ESG investor is offered along with a discussion of investor challenges posed by certain trends in the industry, such as load defection, stranded asset risk, and climate change. While financial performance and sustainability are compatible in many instances, there are also a series of tradeoffs ESG investors face when financial or business needs collide with sustainability issues or one area of sustainability competes with another.