Energy companies, for example, have a big task on their hands. As heavy carbon emitters, their transition will be longer and costlier than others.
We take a look at an energy company to see what progress it is making on its sustainability journey.
Case study – RWE
RWE is a German utility company that has been supplying energy for over 120 years. Its activities are divided into three areas: lignite (coal) and nuclear, European power, and supply and trading. We are working with RWE on its energy transition. The process involves decarbonisation, the phase-out of coal and nuclear energy in a responsible manner, and investment in renewables.
We engage directly with RWE as a stakeholder and also through Climate Action 100. This organisation was launched in 2017 by investors (for investors), with the aim of focusing on the world’s largest corporate greenhouse gas emitters. It identified RWE as one of the 167 highest-emitting public companies. Since then, RWE has set science-based targets to reduce Scope 1 and 2 emissions by 50% by 2030 (compared with 2019), and Scope 3 emissions by 30% by 2030.
A ‘growing green’ strategyRWE has a target of achieving a net-zero carbon position by 2040. The next step is to accelerate its renewable generation capacity through its ‘growing green’ strategy. This strategy highlights that sustainability is fully integrated into RWE’s operational business activities.
The company has reduced its carbon emissions by more than 90 million tonnes between 2012 and 2019. By 2030, it will aim to produce 50 GW of renewable energy using wind, solar, batteries, flexible generation (energy storage), and hydrogen. It will also invest €50 billion in renewable energy. Currently over 80% of investments are aligned with the EU Taxonomy. By 2030, this will have increased to over 95%.
No more coalThe newly formed German government has brought forward its goal of ending coal use from 2038 to 2030. As such, RWE has an agreement with the German government to close down its coal-fired power stations.
Several factors have to be taken into consideration when ending the use of coal-fired stations. Firstly, RWE must ensure that it can continue to supply energy. This involves increasing its use of renewables, renovating and extending the grid, and changing its power stations. Secondly, decarbonisation will change the skills and staff that are required at RWE, which comes with a social responsibility. In order to manage this in a socially responsible way, RWE works with the government and unions to explore different options for staff. Some employees might opt for early retirement; others will retrain.
Governance aids environmental goals
Achieving a net-zero position is not just an environmental issue, though – it requires RWE to have the right governance in place too. Effective board governance is vital to ensure a smooth energy transition. Supervisory board members are re-elected every three years and the renewal dates for board members are staggered. To ensure a smooth transition, half of the board renewals will take place in 2024 and the other half in 2025.
Effective board governance is vital to ensure a smooth energy transition
Any new appointments will need to offer significant expertise in technology, digitalisation, renewables, flexible energy, and storage. As the demand for electricity will increase significantly during the energy transition, major investments will have to be made by electricity companies in order to cope with the surge. Quite a few outages are happening now because the infrastructure is outdated and can’t cope with the demand or the transition to renewables into the system. This will require specific skills at the board level, so that they are aware of what is required and have the expertise to supervise management with their investments.
Other governance issues include ensuring that executive remuneration is aligned with the company’s environmental goals. Short and long-term performance goals at RWE must have a sustainability focus.
We continue to engage with RWE to encourage its decarbonisation journey. We also measure RWE on various in-house metrics and scores, which reflect the progress RWE has made so far in its transition.