Duke Energy Corporation (DUK) Earnings Call Transcript & Summary

Welcome back. Katherine Neebe, Chief Sustainability Officer for Duke Energy joins us from the United States. Katherine, welcome to Davos Energy Week.

Thank you. I'm really excited to be here.

Pleasure having you. Katherine Neebe serves as Vice President of National Engagement and Strategy and Chief Sustainability Officer for Duke Energy, one of the largest power generation companies in North Carolina, the United States. She also serves as President of Duke Energy Foundation. In these capacities, she leads Duke Energy's stakeholder engagement efforts to develop solutions to meet customer needs for continued reliable and affordable energy while simultaneously working to achieve the company's goal of net-zero carbon emissions by 2050. Katherine, in the beginning in our interview, I can't help but ask you about Biden's presidency. All our participants and speakers uploaded his first historical decisions, especially the one to rejoin Paris Agreement. Speaking about his energy policies, what will be his main challenge in advancing the ambitious energy transition goals?

Well, first, I'd like to start off and just appreciate Biden's decision to have the United States rejoin the Paris Agreement. I, in previous capacities, was -- was previously with Walmart and before that, I was with the World Wildlife Fund and have been watching and participating in the various COPs that led to the Paris Agreement, inclusive of Paris and bond. So I'm excited that the U.S. is back at the table, and I'm excited that Duke Energy really is hoping and planning to lean in and have a voice -- have -- be part of that conversation. I think the challenges are really real for the Biden administration in picking up a country that is still in the midst of a global pandemic where we're seeing some real stress on the economic system, and people really, really struggling. And I think historically, sustainability has always been right at that kind of spot, that sweet spot of trying to figure out how do you optimize a system, optimize a program, optimize policies so that you're really creating value for people today, value for people tomorrow and really trying to optimize economics, environment and social issues. And I just think right now, the Biden administration has a huge challenge and a huge mandate in front of them, and I'm really excited and hopeful that they'll be successful.

Thank you very much. Now let's talk about your sustainability program. In 2019, your company announced a zero goal by -- of 2050, reporting on 39% emission cuts compared to 2005. By 2030, you are pledging to halve your 2005 emission levels. Can you talk a little bit more about your climate and sustainability strategy?

Sure. So our company purpose is to provide reliable and affordable and increasingly clean energy. And to your point, we have a net-zero commitment by 2050. We have an interim target of at least 50% emissions reductions relative to the 2005 baseline. And the way that we're going to get to 2030, that interim target, is by retiring coal, scaling renewables, scaling battery storage. And so I would say that's kind of the near-term focus. We've got a clear line of sight there. And we have already gotten out of a lot of coal. We've retired around 50 coal units overall. We have also recently announced 20 -- our methane emissions reduction goal, which is a zero net target by 2030, and that's really focused on our natural gas business. So I would highlight those as the kind of 2 near-term interim areas of focus. Beyond 2030, we're certainly looking at new and emerging technology and needing to see how we can scale some exciting technologies that are around the corner. I would be remiss if I didn't talk about just the critical role that stakeholder engagement is going to play in terms of our success over the next 10, 20, 30, 50 years. And I would say that probably applies, not just to Duke Energy, but to most companies operating in this environment, the need to really understand the goals and the ambitions of their stakeholders, the policymakers, regulators, members of civil society, NGOs, customers, employees, and that whole universe of stakeholders, I think, will be really important. So I would kind of stop there with the focus of our energy strategy.

Thank you. You briefly started talking about technology. So what are the technologies that you are exploring right now to help meet your net-zero goals?

Yes. We'll continue to really focus on renewables and battery storage. I think there's a lot of promise there. I'm really excited about those technologies and just bringing them to scale. As I look around the corner, at some emerging technologies, certainly, nuclear has a lot of promise. Hydrogen is really interesting to me, long duration storage, renewable natural gas. I think there are a lot of things that are around the corner that I'm hopeful that we'll be able to get them to scale really, really rapidly. Of course, natural gas will be part of the equation for us. As we think about just reliability, peaking units, keeping our operations reliable, I think that's something that we'll be really, really focused on moving forward. And then some new technologies that are around the horizon, we refer to them as ZELFRs, and I want to get my acronym right, but it's zero-emitting load-following resources. These are new technologies that I think will help us keep things up and running, while also balancing our -- also reducing our emissions.

Thank you. In answering my first question, you mentioned about retiring coal power generation and scaling renewables. So for many years, you have been largely a coal power generation. And besides huge investment on this path, what are the other challenges?

There are so many, I would call them opportunities, not necessarily challenges, as we think about the future. Environmental justice is front and center for me as an issue as we think about the just transition of energy. I think thinking about the -- just the shift that is needed in the energy sector as we start scaling more and more renewables and thinking about the communities where we operate, the jobs that we have. So I think that is top of mind for me. The other thing that I think we need to be really focused on is the regulatory environment. I've talked about it at the start, but really leaning into the conversations with our regulators and our policymakers to understand how they're approaching their jobs and their roles and how we're working together hand-in-hand to really figure out how we get from here to 2030, to 2050 for our customers, for our communities. And I think I spoke about it a little bit earlier, too, finding that sweet spot is really, really critical. How are we thinking about the energy transformation that we're in the middle of and ensuring reliability, insuring affordability, while at the same time reducing emissions.

Thank you for your answer. Now let's talk a little bit about disclosures and reporting, which have already become standard to all global companies and are very important to maintaining trust and holding companies accountable as they tackle the issues like climate change. What are your thoughts on reporting structures like Global Reporting Initiative index and others?

So I might take it a step back and talk about ESG, environmental, social and governance, when it comes to transparency. First, I'm a huge believer in transparency. I think sunlight is the best disinfectant. And the more that we, as companies, can get really comfortable with what are the facts? Where are we today? Where are we headed? And then, are we achieving our goals? And just being really clear on our progress, where we're exceeding expectations and where we may fall short and need to really lean into new topics. So I would just say, as an overarching comment, I'm a huge believer in increased transparency. On the reporting front, I think it's really important that companies talk about governance. This is, in my experience, kind of the most important thing for a company to ensure its long-term success, having the right purpose, having a strong mission, really having a culture of ethics and compliance, having visibility to the Board of all of the work that is underway, the challenges and the opportunities ahead. From there, I think it's really important that companies provide information on what is material or highly relevant to their business. So the question that I often ask when I think about materiality, because in the ESG world, this is kind of a moving target or there's a lot of discussion about it. But the question at the heart of materiality is, in my view, what matters to the company and what does the company matter to? So really thinking through what is actually going to impact that company in the grand scheme, and then where can the company really make a difference on unique discrete issues. I think those are the 2 kind of core areas of focus as it relates to transparency. And then the other thing that I would just emphasize related to that is what I call shared value. This is not a concept I came up with. This is a concept that Michael Porter up at Harvard has really thought through, but how are we adding value to the business and how are we adding value to society? So materiality is kind of the heart of that shared value conversation. Beyond that, I think all of the frameworks that are out there are helpful in helping companies organize their thoughts on what is relevant, aligning their disclosures so that investors can compare, so that stakeholders can compare company's performance on one topic versus another. I think we're still relatively early when it comes to disclosures and frameworks, and I am really hopeful over time that we'll identify kind of that unique discrete subset of key metrics and disclosures that are helpful to investors, stakeholders, members of civil society. But I think we haven't quite gotten there yet. And I think there's a lot of information on the G, the governance side of things. We could probably go further there. I'm always looking out of going further when it comes to transparency. On the E side of things, particularly oriented around climate, I think we've got fairly robust disclosures. There, I think, is an opportunity. I don't see it as relevant for Duke Energy, but I think there is an opportunity to go deeper on issues of natural capital and biodiversity. I think this is an area that I'd be really interested to see us get stronger on when it comes to what are the metrics and the disclosures that are really, really relevant. And then on the S, the social side of ESG, this is one area where I think we know it's really, really relevant. We know it's really, really important. But I think the disclosures that are out there and the metrics that are out there stand to be refined over time.

Thank you very much. My next question will also be about the ESG. And it seems like COVID-19 has shifted the ESG conversation to bring more focus on social and governance factors, like human Capital management, supply chain risk, business opportunity continuity. How are you thinking about those factors within your industry?

Yes. COVID-19 has been a real challenge for all of us. At Duke Energy, we have been focused on ensuring the safety of our employees and our customers. I would say that's top of mind for us as a company. But I think one of the things that COVID-19 has also eliminated for me personally is just the importance of sectors of the economy like the energy sector and companies like in my previous employer of just the role that these companies are playing just by keeping running. I mean we provide reliable and affordable and increasingly clean energy to customers all across the southeast of the United States. And that in and of itself, certainly in a global pandemic, is really, really important. And so as it relates to COVID-19, I think just really understanding how business is really serving society has been a really important learning for me personally. Because it just really builds on what I spoke about a little bit earlier, this notion of shared value, just really affirms this notion that the companies by and in of themselves are really helping to address an intersocietal issue. I -- as an essential service. Beyond that, Duke Energy has leaned in. We've invested and provided north of $8 million for many of those in our communities who've been impacted by COVID-19. For example, we're helping with utility bills in Florida and the Carolinas. We've been providing some relief for frontline workers in Ohio and Kentucky. And then from the standpoint of the foundation, which I also run, we recently invested in retrofitting school buses with mobile hotspots to help students across the Carolinas, North Carolina specifically, stay connected during the pandemic.

Thank you very much. I have a couple of questions coming from the audience. Renewables and battery storage integration and green hydrogen are clear net-zero. How keeping natural gas could lead you to net-zero?

So I have worked on climate change for around 20 years. We are a company that has significant coal assets, and we know we need to get out of coal. The technologies that I see available today to help us do that to transition rapidly, include scaling renewables, include battery storage, but candidly also include natural gas. There is no other way that we're going to be able to balance reliable and affordable energy for our customers without natural gas being part of the equation, certainly not in the near term.

Thank you. Next question from the audience. What do you think about implementation of CCUS in Duke Energy Holding?

So I'm 5 months into my role. My previous experience was in -- within the retail sector working for a large retailer. So I'm not sure how to answer that question.

Okay. No problem. So let's get back to the conversation about the ESG, which you are more familiar with. How do strategic partnerships enable your further progress on the ESG?

So I spoke about this earlier with the stakeholder engagement, the importance of really understanding where our employees are, where our customers are, investors, policymakers, regulators, members of civil society and NGOs. And so in my mind, we cannot make progress on ESG if we are not having really deep meaningful conversations with our stakeholders and understanding what is the outcome that they want to get to. Where are they -- what are their hopes and their aspirations, and how can Duke Energy help facilitate that? How can the foundation help facilitate that, while we're also meeting our objectives. We have had -- one of the things that I've really enjoyed in my role, again, relatively early in, has been to sit down with some of the leading nonprofit organizations, particularly on the environmental side, to really understand what are their hopes and aspirations for Duke Energy as we are on our net-zero journey and what is the role that they can play to bring the scientific expertise to bear, their knowledge to bear to really help advance our progress and where are there certain shared learnings where we can really align together and work together.

Thank you very much. My last question to you will be what piece of advice do you have for those in the energy industry on how they can improve the overall approach to ESG and stakeholder engagement?

A few bits of advice. And I'm humble of whenever I offer advice, particularly when I'm relatively new in the role. I would say a few things. I think stakeholder engagement is really critical. And I can't underestimate how important it is to understand at a national level where is the conversation, at a global level where is the conversation a regional level and down to an individual customer level. I think really being comfortable with having uncomfortable conversations will be increasingly important over time and also trying to think through how do we harmonize and optimize to get to our shared outcomes in the long term. I think the second thing that is incredibly important is transparency. Again, sunlight is the best disinfectant. And so to the degree that you can be comfortable sharing your progress, raising your hand when there are challenges or questions or you need help from some members of civil society, for example, the academic community, environmental community, social community, I think that's really, really important. And I would emphasize that. And then the third is a bit competing with the notion of transparency, but really understand what's material and highly relevant to your company. Again, what do you matter to and what matters to you? There is a tremendous amount of pressure to disclose information. Every time I turn around, there's another survey or another framework, where they're at -- where people are, in good fate, I think, asking for information. But I think really being focused on sharing the information that is, again, highly relevant to your company, will be incredibly important. I think it's easy to get distracted and to put a lot of information out there, but it may not be necessarily the right information for your company.

Katherine Neebe, Chief Sustainability Officer as Officer at Duke Energy, thank you very much for joining us. I wish you all the best in advancing your sustainability program in this new favorable, I hope, political environment. Thank you very much.

Thank you.