Impak Battles, an ImpactAlpha series with impak, a Montreal-based impact ratings agency, assesses the positive and negative impact of corporate operations. Each month, the agency uses its impak Score rating methodology in a head-to-head assessment of two representative companies. Last month’s edition: Nestlé vs. Danone. Next up: A comparison of the two European energy utilities. Face-off!
Investors are watching the utilities sector with interest. The push for a green recovery, energy disruptions due to COVID-19 and the evaluation of energy-security measures will create leaders and laggards.
The climate crisis and the goals of the Paris Agreement have accentuated the need for renewable energy. The roll-out has been jeopardized by severe interruptions of renewable energy equipment deliveries from China and loosening of environmental regulations to help providers.
Past environmental and social actions are like a fortune cookie for the future. That’s why it’s with great interest that impak analyzed Engie and Enel’s 2018 impact statements and impak Score. Editor’s note: The impack Score methodology follows the IMP classification: A (Act to avoid Harm), B (Benefit stakeholders), C (Contribute to solutions), and Z (Does or may cause harm).
First, let’s have a quick look at COVID-19 initiatives of the two utilities. The French Engie offered financial support to its small suppliers (€250 million), set up an emergency aid program in Latin America ($2 million), reduced by 15% its executives’ salary for a period of two months, and provided an extensive social insurance policy to all of its employees worldwide. The firm established various measures for its vulnerable clientele: it refunded two months worth of electricity and suspended or spread out payments without fees or penalties. Engie also provided support for hospitals, senior residences and vulnerable people through its foundation.
For its part, the Italian Enel, through its foundation, allocated €23 million to support Italian healthcare structures and the Civil Protection Department. One of its subsidiaries also purchased healthcare products and offered special energy rates to quarantine centres. It allowed employees to donate leave days to their colleagues, and offered a new insurance policy covering all employees, as well as free remote psychological support. Enel says that 55% of its workforce works remotely to prevent the spread of the virus. Note that Brazil’s Consumer Protection Agency fined Enel São Paulo $2 million on July 12th for “poor service and violation of the federal Consumer Protection Code… related to the collection of high amounts in electricity bills during the pandemic period.”
Engie dedicates 4.92% of its activities to contributing to UN Sustainable Development Goal No. 7 (energy access) through one material positive impact: the use and production of renewable energy via its solar and wind power and its hydroelectric projects. Engie reports well on the subject and has set ambitious targets, however, they may rely on infrastructure that is highly detrimental to local communities and ecosystems.
Enel: 8/500 *Winner*
Enel is one of Europe’s utilities companies with the highest renewable energy production capacity. The firm has two material positive impacts. The first: substantial increase in the share of renewable energy in the energy mix accounts for 6.97% of Enel’s activities contributing to SDGs. The second material positive impact, which represents 0.18% of activities, is Enel’s contribution to the social and economic development and growth of local areas and communities in which it operates. The company’s reporting is partly aligned to the London Benchmarking Group standards. Still, it does not report on the duration of its impacts or the degree of change for the beneficiaries (see methodological notes, below).
Negative impact mitigation
Impak’s analysis of Engie revealed nine material negative impacts, among which 2 are rated Z (“Do or may cause harm”). One Z is due to convictions for illegal competitiveness towards Électricité de France (EDF) in 2017 and 2018. The other is for corruption scandals surrounding the Jirau Dam case in Spain, for which 175 incidents were reported in 2016. Since, the company saw a 25% increase in reported incidents, which could indicate more reports on incidents or more incidents. The second Z involves Engie’s conviction for unethical canvassing and unethical subscription conditions. Despite the frequent improvements to contracts and sale policies, the issue is recurring almost annually.
Among 10 material negative impacts, Enel has one Z for several confirmed breaches of the code of ethics, notably regarding corruption, conflict of interest and bribery, and also for a conviction by the Italian Competition Authority for abuse of a dominant position in 2018. That the firm reports extensively on the fines and sanctions, and that it is the first Italian company to adopt organisational and managerial checks to prevent offenses in identified at-risk areas is quite noteworthy. It has also adopted the ISO 37001 anti-corruption certification.
Engie: 76/200 Enel: 90/200 *Winner*
The two companies’ governance scores are close. What stands out as a major discrepancy is in regards to the formalisation of the impact mission in the companies’ governance documents. Enel received 14 points out of a possible 20 due to the presence of a commitment to SDGs in its corporate governance report. Engie doesn’t formalize its mission or identify social or environmental issues to tackle as part of its governance. Interestingly though, Engie includes employee representatives in its decision-making process, for instance on the board. Enel still lacks in regards to this good practice.
The winner: Enel (impak Score: 220)
Utilities: Leaders and laggards
The utilities sector used to be, by definition, one of the most polluting sectors of all. Today, technological improvements in renewable production, and stocking and energy distribution allows for a true breakthrough. With the strong emergence of renewable sources, the use of polluting energy (fossil fuels, for instance) relies only on the intention and transformational willpower of the companies themselves. The sector contains at the same time the world’s best-in-class and laggards, demonstrating the potential for transformation as well as the aftermath of not doing so.
Data are based on both companies’ 2018 public financial and extra-financial statements, compiled using impak’s rating methodology available on www.impakfinance.com, and aligned with the Impact Management Project (IMP) framework.
The methodology follows the IMP classification: A (Act to avoid Harm), B (Benefit stakeholders), C (Contribute to solutions), and Z (Does or may cause harm).
It should be said that both companies count a few other potential positive impacts that were not taken into account because of a lack of information or because they represent less than 0,01% of the companies’ total activities.
Note that according to our methodology, the level of penalties in case of a Z is based on 3 different factors: the type of Z (does cause harm or may cause harm), the repetition of the Z throughout time and, only in the case of a Z ”does cause harm”, whether or not corrective actions have been taken.
Two positive impacts can overlap—for example, if the same product is certified Fair Trade AND Organic. The percentages of activities linked to these impacts are therefore not cumulative.
Duration is the timeframe for which the stakeholder experiences the outcome, and Depth is what is defined as the degree of change for the beneficiaries. Both relate to the How Much dimension, one of the 5 dimensions defined by the IMP.
impak, the independent impact rating agency, regularly publishes content providing transparent data on the social and environmental impact of companies. By doing so, it aims to accelerate the transition towards a stakeholder economy generating an overall more positive contribution to society.