As greenhouse gas emissions drop year over year, natural gas companies have a good story to tell. Now, they are harnessing the power of storytelling through a reporting template that bridges the distance between the gas lines of Main Street and the investment offices on Wall Street.
The template, modeled after an electric-industry document, condenses essential information into a manageable format, allowing for the easily digestible confirmation of environmental, social and governance impact that investors crave.
The collaborative effort, believed to be the first among industries, summarizes the epic story of the gas industry’s “overall effort to address environmental issues,” said Skiles Boyd, vice president, environmental management and resources, of Detroit-based DTE Energy.
“Measuring and reporting helps us set goals and make sure that we’re meeting them,” Boyd said. “This process of clearly reporting will help us identify those goals and help our investors, customers and other stakeholders provide input into what those goals need to be.”
Call it a perfect storm of templates. Beginning in 2014, the American Gas Association’s Environmental Matters Committee members were searching for methods to collate relevant ESG metrics for voluntary sustainability reporting. Investors who meet regularly with AGA and gas companies were expressing frustration at the mountains of data they had to mine in order to extract a nugget of insight. Edison Electric Institute and its members, responding to similar frustrations, were already developing a template that boiled down key metrics into a format that institutional investors could grasp.
“Prior to this, investors found it difficult to compare utility metrics,” said Glenn D. Miller, manager, environmental services, natural gas operations, CenterPoint Energy.
The information was out there, investors and industry players agreed. The challenge was finding it correctly and uniformly reported. Investors “wanted something to compare companies, and they wanted transparency,” said Paula Ciprich, senior vice president and general counsel for National Fuel Gas Company.
Ciprich remembers that as recently as 2012, most investors concentrated on existing proxy disclosure as a telling governance metric. In succeeding years, however, investors started requesting information, including methane emissions, in order to gauge environmental commitment. At the same time, she and other utility officials were fretting over ESG rating firms issuing “broad reports that pulled from a number of media sources.”
“If something was wrong, it was difficult to get it corrected,” said Ciprich, co-chair of the vice president-level EEI-AGA Natural Gas Sustainability Steering Group.
While the utility sector is “probably the most transparent, open industry in the world,” the scattershot filing of information added unnecessary opacity, said Boyd. As a leader of the steering group, Boyd joined meetings in New York City with the investor group.
“All the data is out there, but sometimes, it’s in different places and harder to see,” he said. “We started this program with the investors, asking what they wanted and in what form. We were reporting it anyway.”
Collaborating under a CEO-level task force, AGA and EEI teamed up to modify EEI’s template for gas operations and build industry consensus. The investor advisory group counseled against creating new metrics, so an AGA ESG Metrics Work Group found existing—and telling—data in Subpart W and Subpart NN reporting of greenhouse gas emissions to the U.S. Environmental Protection Agency.
“We took information that we were currently providing to the EPA and repackaged it into this template with AGA,” said Miller, who served on the work group. “The information was already being provided to the government.”
Using figures provided to the EPA creates “an element of credibility because it’s reported to an outside government agency. The same metrics are reported by multiple companies yearly as of a certain time frame. It gives investors the transparency and the comparability,” he said.
With the data parameters in place, some companies posted Version 1 of the EEI template in August 2018. The 20 or so participating gas companies started going live in late 2018 with populated gas ESG templates.
Those first postings are considered a road test of gas metrics and are undergoing review by the investor group and AGA members. After any revisions, the EEI and AGA metrics will be merged into a template for combined utilities, with standalone documents also created for gas-only and electric-only entities, for a second round of voluntary reporting in August 2019.
A qualitative portion of the template allows utilities to put sustainability efforts in story form, including the pipeline maintenance and replacement they “have been doing for decades,” said Ciprich. It feeds into the recent trend among investors to scrutinize “a corporation’s place in the community.”
“Those are values utilities have always been true to, but it’s nice that the bigger institutional investors are publicly recognizing it,” she said.
Over the past decade, both sustainability and sustainability reporting have become “more and more important to investors,” said Jeff Kotkin, vice president, investor relations, at Eversource Energy. Socially Responsible Investment funds that hold Eversource stock have been climbing about 10 percent a year, from about 100 at the end of 2017 to more than 130 by the beginning of 2019, he said.
The voluntary-template effort parallels Eversource’s own environmental strategy to “be a catalyst for the development of clean energy in New England,” said Kotkin. Many of the metrics infused into the EEI and AGA templates were already captured in Eversource’s sustainability reports.
While “all of us people calculating GHG emissions in the past have used various accounting or calculating methodologies,” investors providing input demanded that the final result allow fair, apples-to-apples evaluations, said Eversource’s Kevin Cahill, manager, environmental affairs.
Eversource’s Kotkin agreed that investors who are challenged to overlay ESG findings on earnings and dividend growth are “probably going to move on. Sharing the data in template format will make it easier for them to do the work they have to do. Frankly, that’s what investor relations are about.”
Plus, he added, the utilities’ lives are made easier because “it’s way more difficult to correct incorrect data that’s out in the public than to provide the tools that [let] people put out the correct data to begin with.”
Because the templates also allow utilities to tell their story of efficiency, using the templates can make utilities more competitive when they are looking to attract financial backers, Miller said.
“Most utilities are reinvesting in their infrastructure, which is requiring an incredible amount of investment dollars,” he said. “If Wall Street is willing to lend a utility money at X percent because of our metrics, and another utility pays X-plus percent interest because their metrics aren’t as efficient, the bottom line is that’s affecting the ratepayers and shareholders.”
As natural gas companies developed their templates, most found the needed metrics already in their files, databases and annual reports. But the collecting process yielded an epiphany for Puget Sound Energy.
“A lot of this information was already being compiled in different areas of the company, but it was not examined from a centralized or holistic perspective to start leveraging what was possible,” said Steven Secrist, senior vice president, general counsel, and chief ethics and compliance officer. “The compilation of that information is not the window dressing. It is the compilation to examine where we go from here. That’s as important as compiling the data.”
In a world where distrust of institutions is growing, not diminishing, those stakeholders who can’t find the facts they seek can have “a tendency to start creating,” said Secrist, who co-chaired the steering group with Ciprich. The template can be a tool for public outreach and understanding, as well as a launch pad for internal strategy discussions.
“Our industry can be very complicated,” he said. “If we’re not opening up to look at these types of numbers and the type of data that can come from here, we don’t know what is possible. To the extent we can help shape the argument of what is possible, we can see meaningful results.”
Even when offered more metrics, institutional investors asked AGA and EEI instead for corporate-level summaries accompanied by details “at the granular level of how each of their operating companies are doing,” said Pamela Lacey, AGA senior managing counsel. “They want to go deeper rather than wider.”
But overlaid on that effort is the happy tale of declining GHG emissions, whether through means such as retiring coal plants, replacing old pipes or improving compressor maintenance. It’s a story that investment analysts can tell shareholders eager to green up their portfolios.
It’s even a story to share with environmentalists, whether they are those who understand the public’s need for energy and the technical issues involved in supply, or those who “feel the need to push harder,” said Boyd. “We understand that, too, and there’s a good place for that. What these templates do is lay the information out there very clearly.”
Eversource seized the opportunity to share the template findings throughout the organization, said Kotkin. Officials there also used the template to compare its strategic priorities to other companies’ priorities and identify new strategic possibilities. Though Eversource doesn’t operate fossil fuel plants, the template prompted a discussion on setting corporate emissions targets. And as other gas companies have found, the template offers a stage for sharing the story of replacing older pipes with new lines.
Template designers created room for qualitative narratives that enhance the document’s explanatory power. Eversource, for example, wanted to differentiate its operations and elaborate on some of the company’s accomplishments in nonnumerical terms, then referred readers to additional information in its sustainability report.
“Energy efficiency is a big part of our story for customers,” said Kotkin. “We spend half a billion dollars on it every year. The AGA template gives us an additional opportunity to tell that to the investor or the customer or the employee.”
The investment community asked for the template’s qualitative section to provide better understanding of the differences among utilities in varied climates and regions, with different population densities and fuel-reliance traditions, said Boyd.
“That qualitative part is important so investors can know where we are in our journey and where we’re going,” he said.
The next phase looks upstream. Can the environmental story of gathering and transmission operations also be told via template? Members of the template task force have started outreach, listening and dialogue among upstream producers and Wall Street investors, searching for the possible parameters of an upstream-oriented template.
AGA’s Natural Gas Sustainability Initiative, currently underway, will provide a framework to demonstrate the sustainability of the full value chain. The first step is developing upstream ESG metrics, working with a coalition of willing upstream companies, said Lacey. Work groups will be tasked with designating the metrics that “make sense for interstate pipelines and producers” by capturing emissions from transmission, compression stations and underground storage, and production, she said.
On the environmental front, fairly or not, gas utilities have been historically “perceived at times as reactive,” said Secrist.
“I believe this is actually another example where gas utilities are demonstrating unity around a much stronger proactive stance,” he said. “It provides an opportunity for gas utilities to look at not just their own operations, but start to look upstream to identify opportunities to really make an environmental stance on emissions reductions, from the cradle-tograve operations of natural gas.”
And as with gas distribution, the template can open a window into upstream areas ripe for improvement, especially as technology keeps pace with demand for capturing emissions, said Boyd.
“The more we measure, the more we identify our opportunities,” he said. “That’s the same with any part of the supply chain. This effort shows what we measure or what we calculate and gets the information out to the public.”
Gas and electricity are foundational needs, but utilities have sometimes struggled to gain attention amid investor circles enamored with high tech and fast profits. Widespread use of the template could attract new investors by showcasing the progress that investors love to see, the environmental good that shareholders demand, and the consistency needed for comparisons.
“Investors love this,” said Boyd, who built a feedback loop to collect comments. “They indicated to us to keep it relatively short and straightforward. They like reading short reports. They like being able to compare.”
Widespread take-up of the report among utilities will “reflect well on the industry in terms of transparency,” said Ciprich. “Because this is information that’s already public, it shouldn’t be of concern among utilities or too heavy a lift.”
Miller encourages utilities industrywide to use the template because “this only gets better with more participation.” Increasingly, executives seeking backing on Wall Street or overseas are confronting the challenge of proving their environmental progress, a question of investment worthiness that 10 years ago “would never have been part of the conversation.”
“Today, it’s now part of the deal,” he said. “This is becoming part of the equation, part of the conversation, as we work toward acquiring capital dollars.”
To learn more about AGA's ESG template, visit AGA.org.