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Duke Energy

Climate change and board refreshment

Home / EOS Case Studies / Duke Energy

Duke Energy is one of the largest electricity generators in the US.

Background
Our engagement with the company began in earnest in the aftermath of the serious spill of coal ash at one of the company’s disused sites in early 2014. The incident highlighted in our view that the board needed some refreshment, as it included some long-tenured directors who did not have the obvious skills to steward the company during this difficult period.

However, as it is one of the largest greenhouse gas emitters in the world, climate change has become an increasing focus of our engagement.

Our engagement
Shortly after the coal ash accident, we met the company’s sustainability and governance management, which was followed by a meeting with its chief financial officer. Since then, we have had regular meetings with the company – including its CFO – to discuss governance and sustainability.

In addition to the many meetings we have had with the company, we have followed up with our expectations in writing to the board and other company representatives on a number of occasions, outlining our concerns, clarifying our discussions at meetings and making suggestions for improvements.

Over time, we have developed a good relationship with the company, despite significant differences of opinion at times. In late 2017, we were asked to comment on the draft of the company’s proposed climate change report.

Changes at the company
While we have yet to see the climate change report, we are pleased that the company intends to publish one and is seeking to improve its transparency.

We are equally delighted that it has strengthened the specification for its lead independent director role and significantly refreshed its board with directors with a range of skills and experience. The board’s oversight looks substantially more capable to us than it did four years ago, with some of the long-serving directors, one in particular whom we did not see as having relevant skills, coming off the board, and some with good quality CEO and other relevant expertise, including deep knowledge of nuclear power, joining it.

We also welcomed that the company has implemented the right of shareholders to have access to nominate candidates to the board on the management proxy statement, having supported a campaign to provide this fundamental shareholder right at the company.

We look forward to continuing our relationship and a demonstration of the company’s commitment of how it will help the transition to a low-carbon economy. We also expect it to provide evidence that it is managing water and extreme weather risks, as at least some climate change is already inevitable. We look forward to reading the company’s climate change report in 2018 and providing our observations on it.

We will also continue to press for better disclosure on how it manages the risks in relation to its political and lobbying activities and donations, which we see as a growing reputational risk for many companies.

 

 

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Tim Goodman Tim Goodman is a director at Hermes EOS and sector lead for oil and gas. He is also responsible for Hermes EOS’ activities in North America. Previously, he worked in the insurance industry and held a number of senior operational management roles before acting as a company secretary at a UK-listed company. He is a member of the Institute of Chartered Secretaries and Administrators, having obtained the institute prize for the best overall performance when he qualified. Tim is a regular speaker on governance-related matters, a former member of the US Council of Institutional Investors’ corporate governance advisory council and a former chair of the UK Quoted Companies Alliance corporate governance committee. He is currently on the ESG advisory board of US law firm Grant & Eisenhofer.
Read all articles by Tim Goodman
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GlaxoSmithKline

Engagement objectives

Environmental: Carbon risk, Climate change reporting, Disclosure to CDP Water initiative

Social: Political and lobbying activities and donations

Governance: Board refreshment, Proxy access, Strengthening of lead independent director role

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