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The (R)evolution of Stakeholder Engagement
Sandy NessingManaging Director, SustainabilityAmerican Electric Power
AHC Conference – Phoenix, AZJan. 20, 2016
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About Our CompanyAEP Owned Generating Capacity by Fuel (actual & projected)
• Stakeholders are better informed, more engaged
• Collaborative models of governance and decision-making among stakeholder networks
• Expect companies to be technologically competent to respond instantaneously
• It is a source of value creation (and destruction)
• More than ever, it’s about managing risks and embracing opportunities
Stakeholder EngagementHas Become More Sophisticated
AEPsustainability.com
4Evolution of Stakeholder Engagement
Board report on emissions risk
1st formal stakeholder meeting1st coal supplier & NGO stakeholder meeting
20082004 2007 2009
Ceres Open Letter
Completed 5th coal supplier survey
111(d) & carbon emissions stakeholder meeting
1st coal supplier survey1st sustainability report
2013
Stakeholders request more disclosure on
mountaintop mined coal
2011
Revamped stakeholder
process
2014
AEPsustainability.com
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Why Companies Engage
When engagement is embedded in business strategy it helps to:A. Stay informed on issues that important to us, our stakeholders
and investorsB. Engage our employees C. Position the company to take advantage of new opportunitiesD. Mitigate riskE. Eliminate misperceptionsF. Build trust and credibilityG. Address social impacts and concernsH. Turn relationships into partnershipsI. Avoid shareholder activism
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Internal EngagementDrives Innovation, Efficiency, Alignment
Values
Creative presentation template for all categories business. Lorem Ipsum is simply dummy text of the printing and typesetting industry.
Strategic Alignment
0
20
40
60
80
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External EngagementDispel Misperceptions, Build Trust, Collaboration
From Large…
…To Small
30-40 stakeholders, multiple interests 5 groups, environmental/policy focus
The one constant: AEP management support, participation
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www.AEPsustainability.com
Disclosure of Action – Ceres Process
Stakeholder Issue AEP ActionsHow has AEP’s business plans/strategy evolved as we move toward increasingly carbon constrained future?
This has been evolving as we weigh all options and we have, and will, continue to discuss this in our reporting. Extensive discussion in 2010 report.
What are AEP’s plans for distributed generation? Working with several technology developers. To be reported in 2010 report.
How does the company calculate financial impacts associated with key sustainability risks?
To be addressed in 2010 report.
Climate policy position Our position has not changed. We outline our position and the challenges we face each year.
What are AEP’s plans for transmissions expansion? We are committed to developing an EHV transmission system and continue to advocate for it. Siting and cost allocation issues continue to be a concern. Reporting each year.
What are the benefits/challenges of rapidly deploying advanced coal technologies – environmental, cost, water, liability issues, etc.
We discuss this at length in 2010 report – Mountaineer project, cost to customers, studying environmental impacts, working on liability issues in our states.
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www.AEPsustainability.com
Open Letter to AEP
AEPsustainability.com
10Goal-setting, MeasurementHelps Demonstrate ROI of Engagement
METRIC / AREA of FOCUS DRIVERS PERFORMANCE ROI Business Benefits
Reduce demand by 1,000 MW by the end of 2012 through demand response and energy efficiency programs.
Reduce environmental impacts, operational costs
Stakeholder advocacy
We achieved 1,011 MW, or 101%, of our demand reduction goal (year-end 2012).
Reduced demand reduces operational costs and environmental impacts.
Operational
Financial
Relationships
Environmental footprint reduced
Reduce energy consumption by2,250,000 MWh by the end of 2012 (customer side).
Stakeholder advocacy
Regulatory mandates
From 2008 through Dec. 31, 2012, we achieved 3,016,400 MWh of reductions – reaching 134% of our energy target.
The overall net benefit regarding program costs for our portfolio in 2012 (discounted over time) was over $116 million.
Operational
Financial
Relationships
Reputation
Energy Efficiency
More than $368 million invested in energy efficiency consumer programs 2008 – 2012.
Customer awareness and education are improved, heightened.
In 2012, AEP invested approx. $129 million in energy efficiency programs that achieved savings of:• 294 MW • 1,043,884 MWh
Compliance with energy efficiency mandates. (AEP Ohio is often cited as a model by stakeholders as a best practice for energy efficiency)
More efficient use of energy by customers. Program participants are saving over 1.8 billion KWh annually and are overwhelmingly satisfied with program benefits. Participation continues to grow year after year.
Programs provide positive environmental impacts and continue as our lowest cost alternative to new generation, and create green jobs in Ohio.
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www.AEPsustainability.com
As the EPA ramped up regulatory oversight, opposing views became
entrenched.
With blame on both sides, we mutually agreed to a “cooling off” period.
Communication Breakdowns Happen
AEPsustainability.com
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Revamped Engagement ProcessFollowing Cooling Off Period
Following the breakdown of relations with NGOs in 2012 over environmental regulations and a violation of previously agreed-to rules of engagement, AEP and the NGOs wanted to come back to the table.
Mutual trust and the relationships we worked so hard to develop were at stake.
The Challenge: Everyone was entrenched in their positions and still suspicious.
Time for Change
New Approach, Clear Expectations:• Generate mutual understanding – everyone walks away with a better understanding of
each side’s point of view and why•Find areas of common ground to move forward with•Risks of opposing each other versus working together•Preserve relationships •Rules for fair engagement
American Electric Power AEPsustainability.com
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Shareholder ActivismMost Proposals Backed By Small Groups of Investors
In 2015, 582 shareholder resolutions were filed against companies. More shareholder proposals were filed and received majority support than in any year since 2010.
Top Categories in 2015
Percent, 2015 Shareholder Proposal by Type (Fortune 250)
Corporate Governance 43%
Executive Compensation 42%
Social Policy 15%
Environmental Issues Topped The List – 58 Proposals
AEPsustainability.com
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Stakeholder EngagementWhere Do We Go From Here?
• Strategic consultation, investment• More shareholder activism • Mature processes moving to one-on-one versus group engagement• Moving beyond positions to mutual understanding• Higher level of mutual trust, understanding and willingness to work together
Trends courtesy of Michael Muyot, CRD Analytics
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- Traditional investor/asset manager expects unreasonable, unsustainable growth.- ESG savvy investors will put more pressure on carbon-intensive companies and focus longer-term.
- Think energy efficiency, demand management, data analytics, electric vehicles, distributed resources, etc. - The future is all about cutting edge technology and all things digital.
Smart cities are helping to fund the regenerative economy – turning empty buildings into new opportunities for commercial customers. Examples: vertical farming, innovation hubs, light manufacturing.
Risk mitigation, disaster preparedness and investment in infrastructure recovery and resiliency are keys to being proactive in preserving assets and business continuity. Are you prepared?
Top Issues & Trends for 2016The Unreasonable Investor
Whoever powers smart energy wins!
Extreme Weather: The New Normal
Create Something From Nothing
Trends courtesy of Michael Muyot, CRD Analytics
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To connect with Millennials hire Millennials. They are your future employers, customers and investors.
Continued strong, deliberate movement toward organic farming – non-GMO based. New innovative technologies are being integrated into one of America’s oldest industries – farming.
Companies move from defensive to acting defensively and offensively in preparing for cyber attacks. The reality is that it will happen ..it’s just a matter of time.
Top Issues & Trends for 2016Make Real Connections with Millennials
The Demand for Real Food
Cyber threat: Not “If” but “When”
Some of these issues and trends cut across industries – others are more specific. These are the issues you can expect
stakeholders to bring forward.
