Discussing Diversity in the Utility Industry
- Dec 8, 2020 5:08 pm GMT
In a year of the pandemic-induced social unrest, diversity has become the center, rather than an after-thought, of company policy. Environmental, Social, and Governance (ESG) metrics, which claim to advance environmental and diversity causes, have become the benchmark for companies to raise funding from investors and markets.
Nasdaq, the world’s second-biggest exchange, even submitted a proposal recently to the Securities and Exchange Commission (SEC) mandating diversity requirements for companies listed on its exchange. The exchange’s action is similar to a recent law in California that requires publicly-held corporations based in the state to achieve diversity in their boards.
What do these developments mean for publicly-traded utilities and energy companies?
How Do Utilities Score on Diversity?
For the most part, the new diversity requirements should not be a problem for electric utilities. Companies from the utility sector generally place well in rankings that measure diversity and inclusion. Recent developments have only made them more so. A big reason for this is the capital-intensive nature of the industry. Big infrastructure and power generation projects need money from investors. And investors want diversity.
“When you talk to the biggest investors on a daily level, and we do, they want to understand diversity at the board level and that’s why we have embraced it and made it part of our (ESG) disclosure,” explains Richard McMahon, senior vice president of Energy Delivery and Finance at Edison Electric Institute, a consortium of investor-owned utilities.
McMahon reels off statistics to back up his statement. Twenty three percent of CEOs in the utility industry are women versus an approximate average of 20% across other industries in the S&P 500. Twenty-eight percent of boards for companies in the utility industry consist of women while the average for other industries is 22.5%.
In 2018, the EEI board made a diversity and inclusion commitment focused on four areas, including establishing community connections by incorporating minority-owned businesses into their list of suppliers and increasing the available pool of candidates by making the hiring process more diverse. The organization also developed an ESG template that quantifies ESG metrics for its member companies to share with investors during their earnings calls.
“Halfway through that time period (we realized that) companies had surpassed the requirements for the commitments that were made originally,” says Terri Oliva, executive director of HR at EEI. “So, we put together a next generation commitment with even more goals this past September.” The board is meeting again this week to discuss goals and actions that companies are taking to meet their targets.
The Problem with Diversity Metrics
By most measures, the utility industry’s efforts to become diverse and inclusive are impressive. But they still have to contend with problems.
A cursory study for ESG figures related to diversity for top utilities shows progress in the hiring of females and minorities. But, as I have discussed in earlier posts and comments, the world of ESG investing is a minefield of definitions and measurements.
EEI’s template does not set baseline metrics to measure the same criteria it proposes to measure. There are also no targets for inclusive representation. Oliva told me that the institute has not specified methods to measure diversity and inclusion progress and that their member companies are devising their own metrics.
The combination of an absent baseline and self-reporting metrics means that the starting positions for companies within the sector differ. Measurement of progress becomes relative and subject to a company’s own assessment. For example, a utility may only marginally increase the number of females and minorities in its workforce and still tout those numbers.
Of course, there’s the case for investor scrutiny. In general, large energy companies and utilities come under the spotlight for diversity and inclusion representation. And small companies, where ESG metrics may matter more, escape attention.
Take the case of Atlantica Sustainable Infrastructure Plc., a provider of renewable energy infrastructure, that is listed on Nasdaq. The company released a lengthy ESG report this year and it discusses diversity and inclusion at length. “We are convinced that the diversity of our workforce is an asset that enriches the company with different ideas, perspectives, and experiences,” the report’s authors state.
Indeed, the number of full-time female employees at the company jumped by an impressive 198% to 306 between 2017 and 2019. But the proportion of full-time female employees as a percentage of the total headcount decreased from 42.7% to 25.64% during the same period.
Such statistics can make the diversity equation look unappealing from the broader industry perspective. An Ernst & Young report from last year termed the increase in gender diversity among global utilities “disappointingly slow” because the number of female board members increased by a range of only between 2% to 3% in a five-year period.
Bringing Diversity to Field Work
The other problem is that of translating diversity and inclusive initiatives from the C-Suite into work on the ground. Diversity seems to be the mantra at the executive level. But the same mantra loses its power as it flows down the ranks.
Out on the field, the number of women employees remains abysmally low. For example, as of last year, there were only five women among the roughly 2500 line workers employed by Duke Energy. (The North Carolina-based utility has four women on its board of directors and was ranked fourth in gender diversity scores by E&Y). Dominion Energy had eight women among its 1,300 line workers. PG&E, which recently installed Patti Pope as its CEO, had seven female line workers in its 1900 line workers. At Xcel Energy, there were two women line workers in its 1,000-strong team.
The tech industry blames the “pipeline problem” for low figures of women engineers among its ranks. The utility industry may have a similar problem. Oliva from EEI says that member companies within EEI are reassessing requirements for certain roles. “We are rethinking the role and critical skillsets required for them…we are also looking at ways it (the roles) can be attuned to women and minorities,” she said.
In spite of impressive figures, there’s still work ahead for utilities as far as diversity and inclusion is concerned.
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