ESG Q&A with National Grid
Nick Ashworth
Director of Investor Relations
National Grid
Environmental
What is the visibility in achieving your emissions reduction goal(s) and can you provide us with concrete examples of how you plan to get there?
We have a target to reduce Scope 1 and 2 greenhouse gas (GHG) emissions across our group to net zero by 2050.
The largest share of our Scope 1 emissions comes from the electricity generation fleet of power stations on Long Island, which made up 66% of total Scope 1 emissions in 2020/21. The Long Island Power Authority (LIPA) selects the fuel to use and offtakes the power from the assets we operate. We are paid capacity payments based on the cost of service i.e. generating the power.
In terms of reducing these emissions, firstly; we are making direct investments to improved plant efficiency and performance and, secondly; we are working with LIPA to think about how we take the generation portfolio forward so that we can meet New York’s commitment to reach net zero carbon generation by 2040. We have already started to develop some renewable generation on Long Island, where we are in partnership with NextEra to develop, construct, and own large-scale energy facilities on Long Island including:
• Two 5MW/40MWh battery storage energy systems
• 23MW utility scale solar in Calverton
We expect LIPA to issue more battery Request for Proposals (RFP)s to meet reliability and environmental needs which provides an opportunity to further transform the fleet and reduce generation emissions.
Line losses from our electricity transmission and distribution lines made up 94% of total Scope 2 emissions in 2020/21.
Line losses are the small amounts of energy that are unavoidably lost in the distribution and transmission process. Every time we replace a piece of electrical equipment on our networks, we consider the lowest loss equipment available at that time. We are constantly looking to innovate, to design transformers with lower losses to reduce our emissions in this space.
We are also really focused on assisting renewable generation to reduce the emissions from these losses. As a few examples of our actions:
• We’ve streamlined the UK transmission connection process through new digital platforms allowing customers to connect to our network more efficiently, reducing their cost and time to connect.
• We’re also commissioning further interconnectors, with our 6th electricity interconnector commissioning in FY24, Viking Link, a 1.4GW connection from UK to Denmark, which can carry renewable generation across countries.
• In the US we’re adding to our large-scale renewables portfolio, which now owns 600MW capacity of solar and onshore wind projects and,
• We’re also engaging with governments, regulators, and partners to develop the right solutions to connect 40GW of offshore wind in the UK by 2030
What do you think investors should expect to see from companies – in terms of reporting, transparency, and accountability – when it comes to net zero targets?
Investors should expect to see companies set ambitious but achievable net zero targets across Scope 1, 2 and 3 emissions with a clearly defined pathway on how they will get there and alignment to the requirements of SBTi.
You have a net zero by 2050 goal, but what are your interim milestones? What are the KPI’s we can track to monitor your progress?
Our interim targets are to reduce Scope 1 and 2 greenhouse gas (GHG) emissions 80% by 2030 and 90% by 2040, from a 1990 baseline.
Our 80% by 2030 from 1990 target is the equivalent of a 50% reduction by 2030 from 2016 and is aligned to a well-below two degrees pathway consistent with the ambition requirements of the Paris Agreement and Science Based Targets initiative (SBTi).
Click here to read more in our annual Responsible Business Report.
We also have a commitment to move to a 100% electric fleet for our light duty vehicles by 2030 and we’ve also committed to reduce SF6 (a highly effective electrical insulator that is a GHG) emissions from our operations by 50% over the next decade.
Is your company’s non-financial reporting treated with the same rigour (standards, auditing etc.) as financial reporting?
Yes, we aim to use a similar level of assurance as for financial reporting.
For the KPI’s listed in our Responsible Business Report we engaged PricewaterhouseCoopers LLP (PwC) to undertake a limited assurance engagement using the International Standard on Assurance Engagements (ISAE) 3000
(Revised): ‘Assurance Engagements Other Than Audits or Reviews of Historical Financial Information’ and ISAE 3410: ‘Assurance Engagements on Greenhouse Gas Statements’.
PwC have provided an unqualified opinion in relation to the KPIs that are identified with the symbol and feature in our Responsible Business Report.
Do you think the reporting and management of scope 3 emissions (upstream and downstream) is becoming an inevitable reality for global listed infrastructure companies? If so, what is your company’s plan to manage them?
In short, yes. We have a scope 3 target in place to reduce emissions by 37.5% by 2034, from our 2019 baseline, which is aligned to the SBTi. The main challenge in meeting this target comes from the sale of natural gas in our US business geographies where we buy the commodity for customers, which accounts for just over 60% of our total scope 3 emissions (in 2020/21).
We’ve already started taking steps having signed contracts to procure over 200TWh of renewable energy for our Massachusetts distribution customers – enough power to supply half of our customers’ consumption by 2026 – with some contracts that will extend out to 2045.
We have energy efficiency programs for our customers’ homes and businesses.
Also, crucial to achieving this target is our efforts to decarbonize energy:
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We’re investing in grid modernization to enable more distributed cleaner generation to connect, which will be complimented by investments in advanced meter infrastructure – or smart meters - which will benefit all customers.
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We’re making significant investments in battery and other storage technologies to address intermittency issues, providing reliable, continuous, and seamless service to our customers.
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Finally, we’ll advance clean transportation by making investments to preparing for ‘make-ready’ investments to reinforce the grid and facilitate EV charging infrastructure where we have agreement with regulators. We’re supporting the installation of more than 20,000 EV charging points by 2025 and have recently filed for an additional 32,000 in Massachusetts.
Biodiversity is an emerging ESG theme. Do you think global listed infrastructure companies have a role to play in protecting and enhancing biodiversity? If so, how if your company achieving this?
In short, yes. We have recently set a commitment to improve the natural environment of the land we own, whether operational or non-operational by 10% by 2030. Improvement is taken to mean increased biodiversity, endangered species protection, creation of habitats e.g. for pollinators, and other initiatives.
As an example, in the US this metric will be monitored through a Natural Capital Improvements (NCI) Project Tracker tool, to enable project leads to update status at least monthly.
In the UK we will build on the work we have done to improve the natural environment at 50 of our sites, which has been delivered via our site-based sustainability action plans.
Social
Some companies are resetting DE&I goals. How have the goals changed, and how are they measured? What operational changes have been made to support achieving the new goals? How are management and Board engaged in DE&I?
We are committed to building and developing an inclusive culture with a diverse workforce that fully reflects the communities we serve. Our ambition to lead from the top with 50% diversity in our senior leadership by 2025 as it’s vitally important that our senior leadership teams reflect society and provide visible role models for all our colleagues.
We are also ensuing that our entry level roles are equally diverse, aiming to achieve 50% diversity in all our new talent programmes by 2025. That’s why we are increasing new hires and promotions from diverse backgrounds as well assisting colleagues to achieve their full potential.
We start from a positive place, working to strengthen our Diversity teams within the organisation, auditing ourselves for any unconscious bias in our people processes and systems, investing heavily in training and awareness and taking active steps in development of our colleagues.
Last year we appointed a new Chief Diversity Officer, Natalie Edwards, who reports into Claire Jenkins, Interim Chief People and Culture Officer, who sits on the Executive Committee.
We’re also being transparent about people data where we can, disclosing our progress against these targets in our Responsible Business Report, which has shown progression since we started reporting over the last 2 years.
What is the most important component of the “Social” part of ESG to you and how do you plan to enforce or strengthen it?
In October 2020 we published our Responsible Business Charter which sets out what responsibility means to us and identified 5 pillars where we can have the most impact on society; the environment, the communities we serve, our people, the economy, and our governance.
We report our performance annually through our Responsible Business Report with our first publication released in July 2021.
As well as our diversity and inclusions targets, we strive to make positive impacts on the communities in which we operate. We have targeted access to skills development opportunities for 45,000 people by 2030, and 250,000 employee volunteering hours through to 2030.
One example on how we will achieve this is through our Grid for Good programme, which aims to improve social mobility for disadvantaged or disconnected young people in the communities we serve by facilitating enhanced upskilling and providing employment opportunities in National Grid and our supply chain. In this way we will both help to address the Net Zero skills gap in the energy sector and improve the diversity in our workforce, better reflecting the communities
Governance
Do you or do you plan to have a specifically designated ESG committee on the BoD?
Overall responsibility for oversight of the responsible business programme rests with the Board with certain specific topics delegated to the relevant Board Committees such as the Safety and Sustainability Committee.
Does your company actively monitor (at the Board and executive level) any gender pay gaps in like-for like positions? What is your strategy for addressing any gaps?
Yes, we actively monitor gender pay gaps to maintain fairness across the organisation for pay, which we report against in our annual Responsible Business Report.
We published our long-term diversity commitments in our Responsible Business Charter which looks ensure all colleagues are treated fairly and equally. These are namely:
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Being as transparent as possible in sharing our data, which will include reporting on recruitment, promotion, progression and leaver rates by diverse groups.
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Achieving greater diversity amongst our senior leadership and new recruits.
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Building a culture where it is safe to speak out against exclusion.
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Maintaining fairness across our organisation in pay.
To focus progress on these commitments and specifically, closing our gender pay gap, National Grid has undertaken a number of initiatives to actively recruit into and promote women within our UK business and we are pleased with the progress being made. In our new talent pipeline, we have continued to see a good proportion of women attracted to our programmes, in particular, 17% of trainee hires in the UK were women (a noticeable increase from last year) and 33% of graduate hires were women, materially above the 28% of women that comprise our overall workforce. This has been boosted by our ‘Job That Can’t Wait’ campaign which aimed to attract new talent with passion and potential to help us win the race to halt climate change. We were delighted with the response to the campaign, which saw a sevenfold increase in applications to our Advanced Apprenticeship scheme and started a national conversation about the importance of STEM at all stages of education. This campaign has now also been recognised externally, winning the Gartner Communications Awards for Excellence in Reputation and Thought Leadership.
Overall, in the UK, women represented a greater proportion of promotions (30%) than current overall female representation (28%) and, positively, female hires outstripped female leavers (30% and 29% respectively). We have also continued to see a year-on-year increase in women in leadership roles (currently 35%) and our female leadership high potential pool has grown over 5% over the year. We continue to have over 35% of senior roles in the UK occupied by women. We have been putting focussed effort into debiasing our recruitment process – ensuring gender neutral language, piloting blind CVs and implementing diverse panels and shortlists.
In order to provide focus and drive to our Inclusion and Diversity agenda, we’ve recently created a new role for a Chief Diversity Officer, reporting to the CHRO and who will be responsible for driving the I&D agenda across the business for colleagues, customers and communities. The role will be tasked with refining and driving home our I&D Strategy globally whilst also building a team capable of meeting our vision to develop a truly inclusive culture and a diverse workforce that is fully representative of the communities we serve.
Have you set ESG targets and milestones and are there incentives in place for management to hit these goals?
Our ESG targets and milestones are encompassed within our Responsible Business Charter.
As regards to remunerations, for the Group Executive Committee members we have incorporated individual objectives that are related to ESG, such as delivery of the Responsible Business Charter and progress on emissions reductions. For example, for 2020/21 demonstrating organizational leadership in the energy sector had a 25% weighting of the CEO's individual objectives. Click here to see the full list from our latest annual report.
The key focus for this year (FY22) will be the development of a new remuneration policy and associated consultation with our major institutional investors and proxy agencies. Key elements of this review include:
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Evolving requirements of our investors, and society more generally, with regard to ESG performance (taking into account National Grid’s trajectory along its publicly stated Responsible Business pathway);
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National Grid’s contribution towards enabling the wider societal evolution towards new and renewable energy sources and networks.