National Grid, the UK infrastructure company that owns gas and electricity transmission and distribution networks in the UK and the US, has released its responsible business charter, setting out ambitious future priorities including ESG goals.
‘The world is changing pretty quickly, and I think we need to evolve pretty quickly as well,’ Nick Ashworth, London-based head of investor relations, told IR Magazine’s ESG Integration Forum – Europe.
While the charter was released in October, Ashworth offered the forum his insider’s look at what National Grid is prioritizing for the next few years (carbonization and climate are key issues) and how the company’s IR conversations with investors differ in the UK versus the US. He joined the company just over a year ago after 14 years at Morgan Stanley in various roles including head of European utilities equity research.
Ashworth believes National Grid, with £14.93 bn ($20.05 bn) in revenue in 2019 and 22,576 staff, has a huge role to play in the evolving climate change debate both internally, to reduce carbon emissions, and externally as an ‘enabler’ across society, particularly in relation to de-carbonizing power and transport issues.
While National Grid is one of the world's largest publicly listed utilities, it has been affected by the pandemic. The coronavirus crisis lowered revenues, increased costs and left more people unable to pay their bills, resulting in a 12 percent drop of National Grid’s underlying profit to £1.1 bn in the six months to the end of September, compared to a £1.3 bn profit in the same period last year. John Pettigrew, the chief executive, said at the time that National Grid was well-positioned and focused on smoothing regulatory challenges and preparing for a low-carbon future.
The charter is divided into five sections: environment; National Grid’s people; the communities it serves; economy; and governance. Within that, Ashworth broke down the ESG priorities for the future.
Environment
On environment, National Grid expects to get to net zero by 2050 and has tightened up interim targets to commit to 80 percent carbon reduction by 2030 and to 90 percent carbon reduction by 2040.
‘On top of that we are also now talking about Scope 3 and reducing out Scope 3 target emissions by 20 percent by 2030 as well,’ he said. Scope 3 emissions are categorized as indirect emissions that occur in a company’s value chain.
National Grid’s other initiatives involve SF6, which is a very polluting gas used in some of its networks, and the company aims to reduce that by 2030 and beyond.
‘We don’t actually have the answers for some of these things today,’ said Ashworth. ‘So we are working with our supply chain and we are spending a lot of time with R&D trying to find new solutions for some of these problems.’
The company has also set up a responsible business unit to work with IR and think about the most relevant areas.
Social
National Grid views its social responsibilities as creating and enabling the right skills to help with energy transition in the future. Specifics in the charter include diversity commitments such as the 50 percent diversity target for senior leadership at group level by 2025 and 50 percent diversity in new talent. It also hopes to get out to communities and help more by improving volunteer opportunities.
That feeds into the UK government’s 10-point plan to get the economy moving with a green recovery.
‘I think we sit in the middle of all of that. Whether it is thinking about connecting offshore wind to the mainland, or some of the hydrogen pilots and projects they are wanting to do. Some of the cleaner gas stuff which will come [in the future] and electric vehicle charging. We’re in the middle of all of this. So, it is thinking about the infrastructure requirements and how we can help with these projects,’ Ashworth said.
Governance
Part of National Grid’s governance strategy is ensuring it is properly managed, that all stakeholders are listened to equally and that diversity targets are set.
‘This is our promise. This is what we want to do. But this isn’t the end of it,’ Ashworth stressed. ‘We are talking about going to net zero by 2050. Can we do it early? We’d love to. But let’s set targets and see how we do over time.’
Jurisdictional differences
As for different jurisdictions, energy transition is going apace on both sides of the Atlantic but the conversation is differently nuanced depending on who National Grid’s IR team are speaking to.
The company runs electricity and gas networks in the UK, and in the US, where these are predominantly located in the northeast of the country in some states that set their own climate change targets.
‘New York and Massachusetts both have their own targets of zero by 2050. Rhode Island has a very tough 100 percent renewables target by 2040, so they are all very tough, progressive states,’ said Ashworth. National Grid is aligned with the politicians and regulators in trying to hit those targets, so what it does at the corporate level ties in with what it does at the geographical level.
In the UK, National Grid is involved in transmission and connecting large power stations to the lower voltage distribution areas, which means it tends to have larger projects and conversations around how to best deliver large-scale infrastructure.
In the US, the company is on the distribution side, so it is ‘lower level, lower voltage and lower pressure on the gas side’, he explained. There are also more conversations around gas than electricity, including how National Grid thinks about cleaning up gas over the next 30 years.
‘Are we going to electrify everything? We think [that] is not plausible. [It would create] huge amounts of disruption. Huge amounts of cost. So how do we think about that transition of gas in particular in the US?’ Ashworth said.
At the end of the day though, there may be different questions but the response is often the same.
‘The answer to all of this is always: It is not going to happen in the next year or two. It is going to take 10, 20, 30 years to come through. Some of these things will be a little slower to come through. But we are working on all of these solutions. We have huge numbers of experts in place.’
