By Brianna Murphy, Vice President, Shareholder Advocacy
As Trillium continues our focus on how investors can address climate change and greenhouse gas (GHG) issues our firm is increasingly engaging with companies around renewable energy and the role it plays in climate change strategies. Renewable energy has proven itself as a way to boost corporate profitability while addressing the risks of climate change . What was once considered a costly altruistic purchase we believe is now an attractive investment – clean energy is becoming the new normal.
The cost of renewable energy has steadily fallen over the last decade – solar panel costs alone have fallen more than 63% since 2010 and are projected to continue falling [2,3] making it more attractive for both residential and commercial use. Now more than ever, companies have the opportunity to diversify their energy sources and reduce costs by producing or sourcing their energy needs from renewable sources. Increasingly, companies and their investors recognize the risks climate change poses to their infrastructure, supply chains, employees, and customers – many companies have taken steps to reducing their emissions and renewable energy has a critical role to play in this. We believe these investments are smart business decisions that are reshaping the energy profile of corporate America. Sourcing clean energy is also helping companies to reduce their greenhouse gas emissions – a critical step in avoiding the worst impacts of climate change. Each incremental growth in installed renewable energy capacity is energy that does not originate from fossil fuels. By encouraging companies to shift their energy demands to renewable sources companies may be able to boost profitability while reducing their climate impact.
How are companies sourcing renewable energy?
As hefty consumers of electricity, companies are in a unique position to drive the demand in renewable energy production – ultimately moving the industry forward. For many companies electricity is one of the largest operating expenses – a line item ripe for change. And while energy efficiency is a critical cost saving strategy, there are limits to efficiency. Companies of all sizes and industries are now turning to renewable sources to power their businesses. Those with ample rooftops can produce on-site renewable energy through rooftop solar. That’s what retailers IKEA, Kohl’s, Macy’s, and Walgreens, are doing. But it’s not just big-box stores, companies across all sectors are investing in renewables. Ecolab, Campbell’s, Cisco, General Motors, Intel, Procter & Gamble, Google, Apple, Verizon, are all turning to renewable energy to power part or all of their businesses. We believe they’re doing this because it makes business sense. Among the largest Fortune 100 companies, 60 percent have goals boosting renewable energy sourcing and reducing carbon emissions and are saving a combined $1.1 billion in energy costs annually through their efforts . Companies are able to reduce their greenhouse gas emissions, reduce energy costs, and position their companies to be successful in a low carbon economy. Companies can also source clean energy through Power Purchase Agreements (PPAs). The agreements help companies lock in lower electricity rates over a 20-25 year period by sourcing energy from a specific renewable project. PPA’s present a tremendous opportunity for businesses to lower electricity costs and shift their operations to clean energy sources even if its off-site.
Eric Schmidt of Google recently stated: “Much of corporate America is buying renewable energy in some form or another, not just to be sustainable, because it makes business sense, helping companies diversify their power supply, hedge against fuel risks, and support innovation in an increasingly cost-competitive way.”
Over the past year Trillium has engaged with a number of companies regarding their renewable energy strategies. We’ve filed shareholder proposals at Home Depot and 3M asking these companies to set quantitative goals to source renewable energy. Recognizing the business opportunity, Home Depot committed to source and/or produce 50MW of renewable energy by 2020. In May 2015 3M will announce its first set of renewable energy targets in its annual sustainability report. We’ve also filed proposals at J.M. Smucker and Oracle asking these companies to make a commitment to powering their businesses with renewable energy.
So what about policy?
While technological advances have made renewables more cost effective, public policy has also been a driver in attracting corporate investment. Renewable energy is governed at the state-level, which means that companies must make thoughtful decisions about where to deploy and invest in projects. Many states have already established renewable energy commitments, mandating that a specific portion of state’s energy must come from renewable sources. These policies have proven successful and states have greatly accelerated their renewable energy industries and while attracting companies looking to source clean energy in the most cost effective way.
Supportive clean energy policies help create a market for clean energy and are a key component in facilitating corporate adoption of renewable energy. Understanding the role policy plays, I’ve been down to Capitol Hill several times to support smart policies that level the playing field for renewable energy. These policies help create certainty for companies and investors looking to plan for the future. The states with strong clean energy commitments benefit by attracting corporate investment.
Many large companies have already demonstrated the feasibility of investing in renewable energy, and Trillium will continue to engage with companies about the critical role renewable energy can play in reducing exposure to volatile energy prices, enhancing U.S. energy security, reducing reputational risk, and meeting the global need for cleaner energy.
IMPORTANT DISCLOSURE: The views expressed are those of the authors and Trillium Asset Management, LLC as of the date referenced and are subject to change at any time based on market or other conditions. These views are not intended to be a forecast of future events or a guarantee of future results. These views may not be relied upon as investment advice. The information provided in this material should not be considered a recommendation to buy or sell any of the securities mentioned. It should not be assumed that investments in such securities have been or will be profitable. To the extent specific securities are mentioned, they have been selected by the authors on an objective basis to illustrate views expressed in the commentary and do not represent all of the securities purchased, sold or recommended for advisory clients. The information contained herein has been prepared from sources believed reliable but is not guaranteed by us as to its timeliness or accuracy, and is not a complete summary or statement of all available data. This piece is for informational purposes and should not be construed as a research report.
Editor’s Note: This article originally was originally published in the Spring 2015 issue of Trillium’s newsletter, Investing For a Better World.