Engagement History
American Electric Power (AEP) is a major investor-owned electric utility in the United States and a focus company of Climate Action 100+. The company has committed to achieving operational net zero by 2045, an ambitious target for the US power sector. Investors engaging as part of Climate Action 100+ wish to understand more about how the company will achieve its greenhouse gas targets. As reflected in the Climate Action 100+ Net Zero Company Benchmark, climate lobbying is a key component of a company’s net zero transition plan. Investors want to ensure that companies are deploying resources in lobbying in line with the company’s stated goals and interests. To this end, investors have prioritized climate lobbying as an engagement matter with AEP.
Electric utilities are in a position to prosper during the energy transition – since decarbonization is a huge opportunity to deploy capital and grow earnings. Investors, however,need disclosure on climate lobbying so that they can judge whether companies are aligning their lobbying activities with ambitiously pursuing this multi-billion-dollar opportunity and are not lobbying against their best interests. Most recently in the US, the Inflation Reduction Act contains significant decarbonization-related incentives that electric utilities can utilize to the mutual benefit of their customers and shareholders. Investors need to know the details of how utilities are influencing such policy action to assess management quality and make their investment decisions.
To date, the company has been receptive to engagement and dialogue, including regular engagement with the CEO and occasional engagement with the board. The company expressed an interest to produce a leading climate lobbying report that offered transparency on their climate lobbying efforts. To this end, the company met with the Climate Action 100+ engagement group and the initiative’s data partner InfluenceMap in November 2022 to understand their own positioning relative to peers, as well as to understand current best practice in the sector.
AEP’s first trade association climate lobbying report was released in May 2023, a welcome addition to the company’s net zero strategy.
About the Report
Taking a collaborative approach with investors and incorporating InfluenceMap’s feedback, the company achieved their goal of producing an industry-leading report. The report has been rated by InfluenceMap as a 50/100 – the highest score for a Climate Action 100+ US Electric Power company,
The report included:
- Disclosure of select climate policy position;
- Affiliations with trade association groups; and
- A clear and detailed methodology for assessing the alignment of lobbying by trade associations with AEP’s policy positions.
However, the latest report does not disclose a clear and detailed framework for addressing misalignment between lobbying by trade groups and policies needed to support the company’s strategy. This is important because trade groups are influential in policy development and hold a range of climate positions that in some cases may be counterproductive to pursuit of this growth opportunity. Investors hope to see an improvement on this front in future iterations.
The full InfluenceMap assessment can be read here.
What Next for AEP?
AEP has committed to reviewing the report annually and investors look forward to continuing the engagement with the company to strengthen future iterations. While there is still some improvement needed – note that the best overall InfluenceMap score is European utility company Enel at 71/100 – for now, investors engaging other US focus companies will be able to use this as best-in-class benchmark for lobbying transparency and procedures.
The report will be assessed in the Climate Action 100+ Net Zero Company Benchmark, results of which will be published in October 2023.
AEP recognizes the growing public interest in political engagement by companies, including lobbying activities associated with trade associations. It is important for AEP to remain engaged in the political process on behalf of its customers, investors and communities and to be transparent about those activities. These groups represent a broad spectrum of views, and our engagement ensures our perspective is well understood, especially where our opinions differ. For many years, AEP has reported the percentage of its annual trade association dues used for lobbying purposes, not all of which is climate related. This report takes that disclosure a step further to examine the alignment between AEP’s position on climate-related issues and those of the trade associations to which we belong.