This article is the second in a four-part series focused on strategic priorities for public power.
Leaders in the energy utility industry seek opportunities to position their utility for better financial performance and operational success: few initiatives resonate more than sustainability. Energy utilities, and many other companies across various sectors, are challenging their staff to incorporate sustainability into the many facets of their organizations. But how can you assess the potential impact of a sustainability strategy and the resulting benefits within your company?
Today, Energy utility leaders face a number of priorities, from solving issues with aging infrastructure to dealing with cybersecurity threats. In the face of these challenges, sustainability presents a unique opportunity to get ahead by improving the long-term health of your organization. In addition, for many public power utilities, sustainability provides a framework for bringing together the various elements of their mission of environmental stewardship coupled with social and economic development. Realizing this begins with understanding the broad definition of sustainability concerning public power utilities and developing a blueprint for an organizational transformation driven by a sustainability strategy.
In the nascent days of the sustainability movement, most electric utilities focused specifically on the impact of their operations on the environment. More traditional topics, like air and water pollution, or the efficient utilization of natural resources, were given a renewed focus as companies strived to be more “green.”
However, as the energy utility industry continues examining how sustainability can impact an organization and its customers, the definition has expanded beyond environmental concerns. Sustainability now encompasses a three-fold mission, which includes focus areas for social and economic impacts alongside the traditional environmental focus. In conjunction with this three-fold sustainability mission, a recent study conducted by the Electric Power Research Institute (EPRI) identified specific sustainability-related areas of concern for utilities within the broader context of their operating mission of providing safe, reliable, and affordable power (shown in Figure 1).
The study’s results, which focused on 15 critical topics of interest across all three areas of sustainability, highlight how public power utilities face many of the same key sustainability issues as the rest of the power industry. In conducting their research, EPRI involved large public power entities such as TVA, NYPA, and NPPD in gathering feedback from surveys focused on issues that could impact the long-term viability of electric utilities and their stakeholders. As a result, the study revealed that several utilities had created an environmental agenda emphasizing such topics as greenhouse gas emissions and climate change, the reduction of other air emissions, water quality and availability, waste management (including coal combustion residuals), and habitat protection and biodiversity.
Many concerns raised by these environmental topics are colored by the additional sensitivity of public power entities to the potential economic impacts of new environmental regulations on the rising cost of electricity, and the need to balance environmental considerations with their economic development mandate. While all electricity providers share these concerns, the unique connections between public power entities and their local communities heighten the need to carefully balance sustainability’s economic and social components with the resource requirements posed by furthering environmental commitments.
Importantly, results from the EPRI survey highlighted additional items beyond more “traditional” environmental concerns. In particular, the social aspect of sustainability was evident, with utilities focusing on public safety and health, a deficit of skilled workforce, community support, increased stakeholder engagement, and economic development considerations.
With the creation and expansion of the societal sustainability agenda, public power utilities have moved to reduce their carbon footprint, by integrating new technologies with their existing generation or by developing, procuring, or constructing renewable generation. However, despite measurable progress, utilities can find themselves on the wrong side of public opinion, particularly around the sector’s contribution to climate change.
Due to their widespread environmental and social impacts, utilities are often regarded as entities that require a “social license to operate.” The social license is defined as the level of acceptance or approval granted to an organization by stakeholders in the local community. It is a dynamic, intangible measure of the population’s perceptions and opinions directly impacted by the existence of the utility. In its simplest form, a social license to operate will consist of an essential acceptance by the local community of the company in question. Most companies, however, will see more significant benefits in the long run if they can attain a higher level of social approval, a level associated with having advocates and collaborative community members.
In the electric utility industry, the term “license to operate” has been historically used to describe the rigorous set of approaches used by nuclear fleet operators. For a long time, nuclear operators have recognized their obligations to demonstrate their “license to operate” beyond essential regulatory compliance. Stakeholders groups hold other players across the utility industry, including public power entities, to higher corporate responsibility standards. When applied to sustainability-related issues, social license to operate can require unprecedented levels of legitimacy, credibility, and trust between public power entities and their stakeholders.
The existing connection between public power utilities and their local communities provides an excellent foundation for further conversations around social license. However, striking the right balance around social, economic, and environmental concerns will be the biggest challenge to public power’s ability to meet growing stakeholder expectations. In addition, the broad spectrum of sustainability issues and the lack of a common definition of “sustainability for utilities” has further complicated the task of corporate management, which must develop a sustainability strategy that aligns with organizational goals. This reality has evolved as sustainability has transitioned from a fringe initiative to a more mature and accepted approach to conducting business.
When sustainability strategies stand apart from core business strategies, gaining support for your vision from your current organization can be difficult. Sustainability issues’ complexity and multi-departmental nature require a new, iterative, and more dynamic approach to organizational development. Development, integration, and adoption of a sustainability strategy require significant changes in the corporate mindset and create an opportunity to rethink not only organizational approaches to sustainability but also the company’s operating model and long-term objectives.
As shown in Figure 2, key steps in a sustainability-driven organizational transformation include:
Figure 2: Sustainability-Driven Organizational Transformation
As you begin implementing your sustainability-driven organizational transformation, it will be necessary to monitor and track the performance of your strategic objectives. Establishing channels of continuous two-way observation and review is critical to ensure the transition is progressing as expected. Some of the key activities to ensure successful implementation include:
Providing visibility to your sustainability strategy and planning through reporting and communication demonstrates the organization’s commitment to achieving the stated objectives. An appropriate level of oversight and engagement will accelerate the pace of adoption for your new organization while ensuring that the sustainability strategy and execution continue to evolve.
Similar to other electric utilities, public power companies are facing heightening societal expectations to go beyond the basic initiatives of the past by fully integrating sustainability into their strategy and operations. To accomplish such integration, public power sustainability must be addressed as an enterprise-wide initiative impacting the CEO’s agenda and the day-to-day processes, policies, and procedures. Due to their unique mandate of environmental stewardship coupled with social and economic development, public power is uniquely positioned to be an industry leader in sustainability-driven organizational transformation.
Additional Contributing Authors: Theresa Perry
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