Climate Strategy Assessments for the U.S. Electric Power Industry

The electric power industry is one of the largest sources of greenhouse gas (GHG) emissions in the U.S. It is also the most capital-intensive industry in the U.S, with infrastructure and operations uniquely vulnerable to climate change risks.

As these risks grow and become more apparent, companies in the electric power industry are facing increased demands from investors and other stakeholders to understand how they are addressing and mitigating these risks in their investment decisions and overall business strategies. Investors want to know if management teams have fully accounted for the potential pace and scale of change associated with reducing GHG emissions from electricity and energy operations as well as those needed to prepare for the physical impacts associated with climate change.

In 2017, shareholders of nine companies in the electric power industry filed resolutions calling on companies to undertake analyses that would examine the business impacts of policies and market changes that would drive GHG emissions reductions to levels consistent with limiting global temperature rise to below two degrees Celsius (a commonly accepted benchmark for climate change mitigation activities). There is a growing level of engagement on this topic across the industry. Spurred by increased investor focus, several organizations have developed recommendations and guidance for companies to consider when assessing climate risks and opportunities. Most notably, the Financial Stability Board’s Task Force for Climate-Related Financial Disclosures (TCFD) released recommendations in 2017. TCFD and similar investor initiatives are urging companies to disclose how they are assessing and planning for the potential effects of climate change within their core business operations.

This framework was commissioned by Ceres to provide specific guidance for assessing climate change-related risks and opportunities for companies in the U.S. electric power industry. Building on existing literature, the framework outlines an approach for developing a climate strategy assessment, which consists of two primary components:

1. a scenario analysis that reflects:
   a) the transition in the U.S. electric power industry and across the economy that would be necessary to reduce emissions consistent with limiting global temperature rise to below 2-degrees Celsius (often called a “2-degree scenario” analysis) and
   b) the potential physical impacts associated with climate change; and

2. the application of scenario analysis insights to inform business strategy.

This framework highlights key questions and considerations for companies when conducting these assessments to support internal business planning and to meet investor and stakeholder expectations. The framework is structured around the components of a climate-related assessment (summarized in Figure ES-1) with detailed appendices that provide further context and references.