RWE and CEZ worst prepared for move to low-carbon economy
Research warns big fossil fuel dependent utilities at risk of profit losses
RWE and CEZ are the worst prepared of Europe’s large utility companies for a shift to a greener economy, according to a ranking compiled for Norway’s $920bn oil fund and other big investors.
The research, used by investors with $100tn in collective assets under management, warned that many of Europe’s publicly listed utilities companies are heavily dependent on fossil fuels, putting them at risk of profit losses as governments worldwide look to tackle climate change.
RWE and Czech group CEZ, along with Germany’s EnBW and Spain’s Endesa, sit at the bottom of the ranking examining how ready 14 of Europe’s large utilities companies are for a transition to a low-carbon economy and a future in which natural resources such as water become increasingly scarce.
Almost 200 countries globally have agreed to limit global warming to less than 2 degrees centigrade a year as part of the 2015 Paris Agreement on climate.
Rick Stathers, head of investor initiatives at the Carbon Disclosure Project, the non-profit organisation that carried out the research, said: “We are still a long way off having a utilities sector that will meet the goal of a 2-degree future.”
According to CDP, the utilities industry is responsible for a quarter of global carbon emissions and must reduce these by more than two-thirds by 2030 to meet the goals of the Paris Agreement.
Almost half of Europe’s big utilities generate at least 20 per cent of their energy from coal, which is a significant source of carbon emissions.
Pelle Pedersen, head of responsible investments at PKA, the pension fund managing €33.6bn for 275,000 Danes, said: “It is difficult to argue why these [European utilities] companies should not pursue a sustainable business plan.
“The question for all of us should be: what is going to work? And using unrenewable resources is of course not going to work in the long term.”
There are concerns that as governments introduce policies to combat climate change, some businesses — particularly those that depend on fossil fuels, such as coal — could become stranded or suffer big losses.
Big investors, including PKA, Nordea Asset Management, the Nordic fund house, and Norway’s oil fund, the world’s largest sovereign wealth fund, have already made steps to divest from companies that generate large chunks of their revenue from fossil fuels such as coal.
Ben Caldecott, director of the sustainable finance programme at the University of Oxford, said: “Investors are increasingly developing capabilities to differentiate between utilities more or less exposed to environmental risks. Utilities heavily exposed to coal are particularly at risk.”
The Austrian company Verbund, Spain’s Iberdrola and Finland’s Fortum ranked among the best prepared for a low-carbon economy in the CDP list.
Verbund is aiming to generate 100 per cent of its energy through renewables by 2020 and is in the process of decommissioning remaining fossil fuel assets.
But RWE, which suffered losses of €5.7bn in 2016 and scrapped its dividend for the second consecutive year, is reliant on coal for more than 50 per cent of its power generation, the CDP report said.
RWE said the company had “a clear commitment to support the national and European climate protection goals for 2050”.
“RWE will also continue to make further efforts to reduce CO2 significantly.”
EnBW said it was “fully committed to the Paris climate agreement and we are committed to contribute our share to its implementation”.
CEZ and Endesa did not respond to a request for comment.