S&P Global Inc. (SPGI) Earnings Call Transcript & Summary

Hi, everyone, and welcome to today's webinar. My name is Lindsey Hall, and I'm head of ESG Thought Leadership at S&P Global Sustainable1. It's my pleasure today to be joined by Lynn Good, who is President and Chief Executive Officer of Duke Energy. Lynn, welcome.

Lindsey, thank you. It's a pleasure to be here.

Thank you. And before we get started, just a few housekeeping items. Today's interview is titled Beyond ESG with CEO Insights and is part of our Beyond ESG series. And this important conversation is being recorded, and an on-demand version will be available shortly after we finish. If you run into any technical issues during the program, please try refreshing your browser. And if the issues persist, please use the Q&A widget to contact us, and a member of our technical team will assist you.

So with that, Lynn, let's dive right in. In October 2020, Duke hosted its inaugural ESG Investor Day. Nearly a year has passed since then, so I'm excited to hear from you today about what has changed in the interim?

Lindsey, I would say to you that our aggressive leadership approach to reducing carbon is not only a part of that climate strategy that we shared with you but a part of our business strategy. And we're continuing to make great progress. Our carbon emissions are down 40% from 2005. We just reached the 10,000-megawatt mark for renewables, and we also have filed for second license renewal on our first and largest nuclear asset. So as I think about the progress that we're making, it is a part of our business plan. It's a part of our capital plan. It's a part of the discussions we're having with our regulators and policymakers, and I'm really pleased with the progress that we're making. We see, over the next decade, investing $125 billion, and about 80% of that is really directed toward this clean energy transition. And so I'm confident that we're on pace to meet our goals of at least 50% by 2030 and also laying the groundwork in this decade for what will be necessary to meet our net-zero goal, which we've established for 2050.

That's great. And in addition to talking about some of those net-zero targets at that inaugural ESG Investor Day in 2020, Duke also announced several new initiatives, and that included a methane emissions target. I'd like to dig into that because a lot of the discussion in the ESG world around climate change is often about reducing carbon emissions. Methane, as you know, is also important. And in fact, the influential August 2021 report from the UN's Intergovernmental Panel on Climate Change, the IPCC, said limiting methane is an important lever to stabilize the climate. With all that in mind, what can you tell me about Duke's approach to methane?

Yes, Lindsey, we take our responsibility around methane and methane emissions very seriously because we agree, it's an important part of our obligation and our responsibility to be good stewards of the environment. And we set our 100% methane reduction, net-zero methane by 2030 goal really to underscore and inform the work we're going to be doing over the next decade. And I would point to 2 key elements. The first one is really focused on our own system. So it's leak detection, it's operational improvements and it's really continuing to drive modernization of our local distribution companies to reduce methane. And we announced recently an exciting partnership with Microsoft and Accenture, where we will be using satellite technology to more readily identify the leaks and be able to send our operating crews effectively to reduce them more quickly. But we're also working upstream. As part of a coalition called ONE Future, we're working with our natural gas suppliers to make sure that they are also making progress on methane. So we see natural gas as being part of the solution, bridging us to new technologies that will be available in the future, Lindsey. And in the meantime, we want to be very focused on environmental stewardship around this, focused on methane so that we're using that resource wisely.

Okay. I'd like to dig in on natural gas a little bit more. Shortly after that Investor Day in October 2020, you did an interview for S&P Global's ESG Insider podcast, which I co-host. And in that interview, you talked about the company's decision to build more natural gas plants. At that time, so about a year ago, you said they were the most reliable, cost-effective option for replacing coal-fired generation. But you've also had some pushback from some state regulators, including South Carolina, on those cost assumptions. So I'm wondering, can you talk a little bit about the role regulators play in deciding your net-zero pathway?

Absolutely, because they do play an important role, Lindsey. And what I would say is what you're seeing in South Carolina is really a part of the conversation that's underway in all of our states and also underway at the federal level where policymakers and stakeholders and utility companies like Duke are wrestling with, what technologies, what pace, what time frame, what cost, what impact on reliability. And in putting together our integrated resource plans in the Carolinas, we presented to our regulators a variety of options, different pace, different carbon reduction, different technologies. And the feedback that we're getting from them is really their view, what assumptions they'd like to see, what additional scenarios they'd like to consider. And we believe that robust discussion among stakeholders and regulators and policymakers is exactly what should happen in order for us to make good choices on how capital is spent, what progress is made in this decade because we want to make wise decisions that we'll be proud of over the next 10, 20 and 30 years. So we want to get the transition just right, and I think conversations like this one will make that possible.

And how might Duke's plans change, if at all, as a result of that regulatory pushback?

I think the plans will reflect the feedback, Lindsey, from both stakeholders and regulators. And I think it's probably understood but I'll reiterate, when we get ready to retire an asset or build a new one, we always present those plans for approval to the regulators. And so these integrated resource plans are just a discussion of various pathways. And as time unfolds, we'll begin to seek specific approval around assets and retirements, and this will be an ongoing process that will occur over this decade and decades to come. And everyone at the table is trying to find the right balance between environment, affordability and reliability. And we are delighted, anxious to be a part of those conversations so we get it just right.

Okay. In that podcast interview last year, you said that technologies like battery storage aren't where they need to be to make up for performance gaps in solar and wind. And so you said Duke does see a need to use natural gas in the medium term to bridge that gap. But you also added that the company is going to continue testing that assumption as new technologies develop. So wanted to follow up with you there. And here, what can you tell us about the state of technologies and their viability? Where do they stand? And where do those gaps remain?

Lindsey, as we look at our plans to be at least 50% by 2030, we have a clear line of sight on how to get there. It's retirement of assets. We will oversee the largest closure of coal, given the scale of our company, over the next decade, retiring more assets, building more renewables, more battery storage, energy efficiency demand response. But when we get to kind of that 60%, 70%, maybe 80% reduction in carbon, we begin to look for technologies that don't exist today: zero-emitting load-following resources that give us the opportunity to make that additional progress toward net zero. So when I say that, you should think about technologies like hydrogen. You should think about carbon capture, longer duration storage, advanced nuclear. And so we are advocates for investment through research and development, federal funding, work with the national labs, work with our research and development institute in the industry to begin investing and continue investing in these technologies so that they're available at commercial scale when we need them, which is likely sometime in the 2030s. And for Duke, we are very involved, working with the national labs and also working with other technology providers to pilot and lend our operating expertise so that can be a part of their development cycle. So we're piloting hydrogen linked with solar, blending hydrogen with natural gas in a combustion turbine. We're working with long-duration storage, a molten salt battery technology that we also think could be promising. And then given our nuclear background, we're very engaged with small modular nuclear and also advanced nuclear. And we look at all of these technologies as advancing to be available in the 2030s, with a hope that maybe it's sooner and certainly, if there's investment, there's a likelihood of that. But we're continuing to do our part, Lindsey, to make sure those technologies are developing so they'll be available when our customers need them.

You talked briefly about your background in nuclear. And I wonder if you could say a little more about that and about how you see nuclear, what role that will play into the future.

For Duke Energy, nuclear is a part of our history and a part of our foundation. Lindsey, just to share a couple of statistics with you. Here in the Carolinas, 50% of the power that we produce comes from carbon-free nuclear. And if I look at all of Duke Energy, over 80% of the carbon-free energy we produce comes from carbon-free nuclear. And so as we think about a path forward to reduce carbon emissions 50%, 60%, 70% and get to net zero, we want to build on that foundation of nuclear. Because think of a world in which it's not there, the challenge to get to net zero would be even greater for Duke Energy. And so we are investing in our plants in a way that would allow us to continue operating them for as long as we can. Second license renewal applications are being pursued for all of our assets. We've started with our largest unit. And then as I said a moment ago, we're also working on the new technologies to see if they may have a role, reaching commercial scale sometime in the 2030s that we could also add those resources. So for us, that climate strategy is built on a foundation of continued safe operation of carbon-free nuclear. And we really think it's essential for our ability to hit those targets.

Great. Duke would also play obviously a major role with renewable energy and also electric vehicles. I'd like to dig into those points. What do you expect in terms of renewable energy going forward and also in terms of EVs?

Renewables are an important part of Duke Energy today, Lindsey, and that is going to do nothing but increase. I shared with you that we've reached the milestone mark of 10,000 megawatts. We see that increasing to 24,000 megawatts by 2030 and renewables being about 40% of our energy mix as we get into the 2040s. So we are investing and investing heavily also in battery technology over the next 5 years, $600 million investment to complement those renewables. And we're also working on customized solutions for customers who may have specific sustainability goals, both through our regulated business and through our commercial operations to add even more renewables to the system. So it will definitely be a part of the equation. And I also think electrification is important. Today, the electric -- the transportation industry also emits carbon, in fact, more carbon than the electric industry. And so the ability to enable electric vehicles and electrification, we see, is an important part of the climate strategy for our communities. We're investing about $100 million in pilots around the Southeast to enable charging infrastructure, and we're partnering with cities like Charlotte to help them electrify transit. We're electrifying our own fleet and then also enabling our grid to be prepared for electrification. As you hear all of these announcements and targets around electric vehicles, the infrastructure bill supporting that as well, we are trying to get ready so that we are able to enable those electric vehicles when the adoption rate continues to increase, as we expect it to, over the next decade.

Like you said, there's a lot of headlines, there's a lot of news and there's a lot of change when it comes to that infrastructure bill. But what are you preparing for at Duke? What are you expecting as far as you can project it to the future when it comes to policy changes?

We're engaged, Lindsey, both at the federal and the state level. I think it's clear that climate is a part of the conversation. It's a priority on the part of our policymakers, our regulators, our customers. And continuing to make progress, as we've talked about today, is really critical, I believe, to our success and doing so in a way that takes advantage of the policies that are also being promoted is important. We're supporters of the infrastructure bill. There's not only electric vehicle infrastructure included with that but important investment in research and development on these clean technologies. We also see tax policy moving forward. Senator Wyden has put forward a tech-neutral tax policy that it also will encourage clean energy investment. So I think there's a lot going on. And we are engaged both at the federal and state level and with our customers to figure out how we can make this transition in a way that not only meets our important environmental goals but does so in a way that's affordable and reliable for our communities.

Okay. So we've heard a little bit about how Duke is engaging with regulators, with policymakers and with customers. I'd love to hear more about the investor front. How are you engaging with investors? And what are you hearing from them about the way you're approaching climate and net zero? On my end, there's just been this huge uptick in the conversations around net zero over the past year. Eager to hear from you what you're hearing on your end.

Lindsey, I would completely agree. And the reason we took 2 to 3 hours last fall to talk specifically just about ESG is because we think our investors are hungry for the conversation. And it's, of course, important around environment because of who we are and not only the progress we're making, the targets we're setting, how we're deploying capital, how we're engaging with stakeholders. Those are all topics that our ESG investors are focused on. But I think it also goes beyond environment. So diversity and inclusion, our Board, the governance policies that we have in place, those are also important conversations, and we welcome those. And so I would say, as I look at the conversation we're having with investors, ESG is increasingly important, complementing the work that we do around, of course, earnings and dividends and the more traditional parts of an investor story. And we have a very good story to tell at Duke Energy and a commitment to carbon reduction and social and governance excellence in a way that I think resonates with our investors.

I'm glad you brought that up. I would like to touch on not just the E, which is a big focus of this conversation, but also the S. How is Duke thinking about the intersection between the E and the S and the environmental justice piece of that puzzle?

Lindsey, environmental justice is important at Duke Energy. And I would say to you that even before it was called environmental justice, we understood the importance of the impact of our work on communities. When you build a facility or when you retire a facility, you're having an impact, whether it's on jobs or whether it's on the landscape, whether it's on the environment. And I think the conversation is something that we welcome. We understand the importance of engaging early with communities. We understand the importance of being transparent on what we're trying to accomplish and seeking feedback and input. And I see that as increasingly important. As we think about this transformation that you and I have been talking about, it's going to include a little bit of everything. It's going to include retirement of assets and economic impact on communities. We want to be involved in helping and assisting. It's going to include building new assets. It's going to include transmission and distribution, building transmission and distribution. These are tough things to accomplish, permitting, engagement of communities. And so I think this conversation about how to engage communities and stakeholders is something we continue to practice at Duke Energy and are committed to doing so in a way that makes this transition and transformation work for the communities that we serve.

And that's another thing, I think, that came out of your ESG Investor Day last year or that was announced around that time is an environmental justice plan. Is that right?

That's right, Lindsey. So we have put together some guiding principles. It's exactly what you and I are talking about, early engagement, focus on communities, getting feedback, being transparent along the way. And we're working actively to operationalize these principles in every major project that we are undertaking at Duke Energy. And we're learning a lot along the way, and I think our communities are learning a lot on how to engage. We want to make sure that we are the good neighbor that our communities count on as we undertake this important transformation. So it is front and center as we think about infrastructure building at Duke Energy.

Any lesson -- any of those lessons that you could share with our listeners today, lessons that you've learned along this way?

I would say early engagement, Lindsey, is a lesson that's learned. You can't show up with a fully baked plan and expect others to come along. They want to have an opportunity to understand your thought process. They want to have an opportunity to look at various scenarios. How could we route, for example, a transmission line differently? They want to have an opportunity to digest what it means to their community and what investments would the community want to make in order to accommodate any change that may happen from our infrastructure. So I would say early engagement is the -- early engagement, early communication, transparency are probably the things I would point to, Lindsey. And we're anxious to learn more. I don't know that we'll always get it exactly right. But our commitment at Duke is to reach out to those communities and have the conversations that hopefully will make it a smooth transition for all of us.

So COP26, which is, as you know, is the UN's big climate conference, is scheduled for November 2021. And at S&P Global Sustainable1, the conversation we've been having is about, how do you set credible near-term milestones on that pathway to much more ambitious long-term goals? Basically, the argument is that if companies don't have a clear path to 2025, to 2030, there's no way you're going to meet these ambitious 2050 net-zero goals. So with that in mind, I'd like to ask your perspective, what is Duke doing in the really near term? What concrete measurable steps are you taking now and in the next couple of years, say, up to 2025, that are going to get you to your more ambitious longer-term goals?

And Lindsey, I agree with that premise that in order to get to the long term, you have to be executing in the short term, completely agree. And in this industry, where it takes several years to accomplish things, whether it's the permitting and the regulatory approvals and the construction, you have to be diligently working at it year by year. And when I say to you that we have a clear line of sight for 2030, that also means we have plans in front of our regulators, we have capital and business plans that are directed in that way. And when I look at our renewable build, I shared with you that we're working to get to 24,000 megawatts by 2030. We're working to get to 16,000 megawatts by 2025. We're looking to invest $600 million in battery storage by 2025. We have 5 more coal units to retire by 2025. We have several billion dollars of grid investment that we're planning by 2025, not only to increase capacity for renewable assets but also to address resiliency and hardening. As the climate changes and we experience more hurricanes and flooding and severe storms, we're also focusing there. We have filed for 1 second license renewal. I would expect another one to be filed before 2025. And over the next 5 years, a total of $60 billion is being invested, 80% of which is directed toward this transition. And I would also point again to research and development. We look at the decade of the 2020s. It's where the investment, the piloting, the lending our operating experience must occur so that those technologies are available in the 2030s. So we also have very clear objectives around the work we want to do in this decade to make sure those technologies are available for us when we need them.

That makes a lot of sense, and it sounds like a lot of near-term concrete goals at Duke. I wonder, what are you seeing from others in the industry, others who are perhaps setting these ambitious 2050 long-term goals? Do you think that there are credible near-term steps that others are also taking? Or do you think at this point, it's just sort of, "Hey, we've set a goal, we put out a press release and that's the end of it."

Lindsey, as I work with my colleagues in the industry, there's a great deal of conviction around this. And if you think about the fact that the industry is roughly at 40% carbon reduction from 2005, I think that demonstrates the conviction. If you look at the pace at which renewables are being built around the U.S., if you look at the pace at which coal is being retired around the U.S., if you look at the pace of investment in battery storage, I do believe there's great conviction to move as quickly as we can, to balance affordability and reliability along the way because the pace is important, the price is important, the technology deployment is important. But I believe this industry is convicted to do their part and have demonstrated that not only in our historic experience but in the present day, initiatives that are underway throughout the industry.

Great. Well, I know we're just about out of time. But Lynn, I wanted to ask, I've peppered you with a lot of questions. Is there any point you think is important for our audience to understand about Duke's journey to net zero and your broader approach to ESG that I haven't asked about?

Lindsey, I think it's been a great conversation. I guess what I would leave everyone with is ESG at Duke is not a separate initiative. It is our business strategy to lead in this transformation of the industry and to do so in a way that's responsible for our communities, to do so with excellence and governance, to do so with excellence and diversity and inclusion in a workforce, a talented workforce that is enabling all of this as well. So we embrace ESG as a part of our strategy and really look forward to the progress we're going to make in the future not only for our customers but for our investors as well.

Great. Well, thank you again, Lynn, for your time, and this has been a great conversation. And for those in our audience who want to review anything we covered, this session is recorded and you will receive a copy shortly so you can access it on-demand at your convenience. In addition, when we close out the webinar, you'll be routed to our webinar survey form, and we'd love to hear your feedback. So please do take a couple of moments to complete. Thanks.