Are Utilities ESG Champions?

While the COVID-19 pandemic commanded a significant portion of our collective attention, 2020 also ushered in a new reality for companies across sectors. Customers and investors alike are increasingly attentive to how the businesses they interact with perform on environmental, social and governance (ESG) criteria.

Our Utility Trusted Brand & Customer Engagement study reveals that customer concern about climate change has climbed steadily since the beginning of 2020. By the end of the year, 56% of residential utility customers expressed significant concern about climate change. Additionally, racial injustice and the Black Lives Matter movement raised the bar among many consumers and investors on how businesses address social concerns.

These changes manifested in increasing prominence of ESG investing, where investors evaluate the performance of companies along environmental, social and governance criteria when deciding where to invest. More than two-thirds (68%) of financial advisors are now using ESG investments, up from 62% in 2019, and expect that within three years ESG-aligned investments will make up 10% of their total portfolio. At the same time, 71% of active retail investors say that a company’s ESG performance has “some” or “a lot” of impact on which companies they invest in. Affluent investors using ESG investing direct nearly half (49%) of their assets to the category and expect their allocation to grow to nearly 60% in two years. Among institutional investors, non-profits are more likely to use ESG investment criteria, but 401(k) plan sponsors and other institutional investors are showing signs that ESG will become increasingly important.

Although ESG serves as an overarching investment thesis, different investor groups prioritize the ESG components differently. For instance, advisors say that renewable energy and climate change rank highly for their clients while non-profit institutional investors are focused on social issues.

In response to these demands from investors, 96% of investor-owned utilities have published an ESG or sustainability report in the last two years. Utilities generally have a good story to tell, as they’ve been deeply involved in the communities they serve for generations and hold many keys to transitioning to a low-carbon economy. But are utilities effectively telling that success story to the investment community?

Recognizing all the hard work utilities put into making tangible environmental progress, we designate the top-performing utilities as Environmental Champions on Earth Day each year. And, while it’s just one component of the ESG matrix, 82% of 2021’s Environmental Champion utilities rate A or higher on MSCI’s ESG Ratings versus 75% of the rest of the industry.

For any utility seeking ways to tell its ESG story more effectively to investors, our new ESG 360° for Utilities report draws from Escalent’s expertise in energy and financial services to examine different investor types and their perspective on ESG investing. The report will uncover the relative importance of ESG components, ESG reporting frameworks and how customer engagement in utility efforts positively influences investor sentiment. As ESG becomes increasingly important, this new report will help utilities understand how to leverage what they’re already doing to build strong relationships with investors through compelling narratives about their environmental, social and governance strength.

Click on the link below to learn more about the ESG 360° for Utilities report and how to purchase it.