American Electric Power (AEP) serves 5.5 million customers in 11 US states. It maintains the nation’s largest electricity transmission system and operates 24 gigawatts owned generation capacity including more than 5,300 megawatts of wind and solar power generation capacity (owned and purchased power).

Like other companies of its size and sector, AEP receives a large number of incoming questions from sustainability investors and ratings agencies.  What differentiates AEP from many other companies is the process that it went through in 2020.

Taking a step back to create a reporting repository

In 2020, the company took a step back from the day-to-day process of answering questionnaires and data requests and focused on organising all of its sustainability data into an investor-ready format which was then used to support a programme of pro-active investor engagement.

Through 2019, the company had been increasing its sustainability reporting - aiming to meet the requirements of all relevant organisations and standard setters including: TCFD, GRI, SASB and Climate Action 100+

In 2020, this reporting was expanded to over 100 metrics and compiled into a single ESG data centre.  This single repository is intended to meet the needs of sustainable investors, ESG research firms, credit rating agencies, insurance underwriters and other stakeholders with an interest in the company's sustainability exposures and management practices.

Meeting exponentially-growing demand for sustainability communications

According to AEP, demand for sustainability communications “has grown exponentially in the last five to six years or so, but we're just seeing the tip of the iceberg on this.” AEP identified three additional reasons for being pro-active about sustainability data provision:

• First, the corporate centre had to make time-intensive and frequent demands on subject matter experts; the central repository reduces the frequency with which it has to do this
• Secondly, the company envisages that voluntary disclosure on sustainability may become a regulatory requirement and that the central repository provides a useful way of getting ahead of this
• Thirdly, AEP notes how a wider audience of stakeholders - including, for example, insurance companies are starting to ask for the same data as investors have been asking for.

The company had to employ an additional specialist to oversee data collection and management, including creating the centre.  However, the investment in time and personnel is seen to have paid back as being the only way to deal with current and projected demands for the company to report on sustainability and ESG performance.

The context of AEP’s wider sustainable investor relations activity

In recent years, AEP has noted a growth and a broadening of investor interest in sustainability issues.  The lead director of the Board conducts corporate governance annually, but the company noticed an increased frequency in discussions around clean energy and climate change in recent years.  Then, in 2020, the topics of diversity, inclusion and workforce development came to the fore.

“Climate has been in the driver's seat for a long time. Governance is in the passenger seat because governance oversees everything.  In 2020, the social piece of ESG staked a claim for the front seat too.”

The company notes how the data centre has also provided useful foundations from which deeper more strategic discussions can be held.

“We're very engaged with Climate Action 100+. We're entering our third year of engagement with them. And it's been a productive and constructive relationship.”

Importantly, the company's commitment to transparency extends beyond the data centre to publishing other materials that are shared with investors.  As a recent example a comprehensive pack of strategic and operational data prepared for a meeting with the Climate Action 100+ investor group was not only used for that meeting but also published for any interested investors here.  This is not only best practice in transparency and in open access to information for the whole market but may set an interesting precedent for other companies in their interactions with ESG data providers and investors.

Outcomes

AEP feels that taking such a comprehensive approach to reporting and communicating sustainability data has helped it respond more efficiently to current investor interest and prepare for future investor (and regulatory) interest.  It has also reduced the burden on its subject matter experts.

Having more advanced data on issues of growing importance (for example on diversity where AEP believes that it is one of the few companies to publish comprehensive data) has really helped on calls with investors and rating agencies.

In respect of lessons learned, the company reflects on how adherence to well-established frameworks - such as TCFD, SASB and GRI - has benefitted the process and also on how subject matter priorities change and that there is merit in constantly refining the data captured at the centre.  Notably, having centralised the data makes it easier to adapt future shifts in, or widening of, stakeholder expectations.

Support

Sustainable-IR thanks Sandy Nessing of American Electric Power for her support in writing this case study.