A presentation about AEP\'s journey, the business of sustainability and lessons learned.

1. Sustainability in the Utility Industry: AEP’s Journey
Sandy Nessing
Managing Director, Sustainability
American Electric Power
June 20, 2012
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2. Who We Are – AEP
AEP Generation Capacity Portfolio
Coal/Lignite Gas/ Nuclear Other – (hydro,
Oil wind, solar, energy
efficiency, demand
response etc. .)
63% 24% <6% >7%
Generation capacity reflects 2012 expectations
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3. AEP’s Footprint -- 2011
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4. AEP’s The Business Lessons
Experience of Learned
Sustainability
“Putting off an easy thing makes it hard.
Putting off a hard thing makes it impossible.”
-- George Claude Lorimer
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5. AEP’s
Experience
The road traveled is not always a smooth one.
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6. AEP’s Journey to Integrated Reporting
2004 2006 2008 2009
2010 2011
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7. The Stakeholder Revolution….
• Everyone is a stakeholder
• Expectations are high
– Profits and positive societal contributions
• Transparency reigns supreme
– Information is power and you control the story
– Eliminate misperceptions
– Build trust, credibility
• It becomes part of the way you do business
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8. …Includes a Shareholder Revolution
• Record number of resolutions filed in 2011
• Governance expected to be a top issue in 2012
• Environmental, social resolutions increasing
• Corporate political spending a focus
– Advocacy, lobbying activities
• Commodity, construction, compliance
risks to dominate
• Shareholders want companies to be
more transparent, proactive on
broader range of issues to protect
shareholder value
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10. Why Should Companies Report?
There are many benefits to reporting – some quantifiable, some not.
• Allows you to tell your own story
• Engages skeptics and critics
• Drives change inside, outside of company
• Identifies risks, opportunities
• Attracts capital
• Increases shareholder value
• Demonstrates and drives leadership
• Drives internal capacity for continuous improvement
• Supports recruitment, retention of best talent
• Builds customer loyalty
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11. The Business of
Sustainability
Shareholders have a valid interest and a stake
in a company’s total performance.
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12. Sustainability is a Bottom-Line Issue That
People Really Do Care About
• The CEO
• The Board of Directors
• Employees, retirees
• Customers
• Institutional investors, lenders, credit rating agencies
• Environmental groups and other advocates you may only
encounter in a courtroom or hearing room
• Prospective employees
• The media
• Your ‘green’ customers
• Labor leaders
• Regulators, policy-makers, legislators
• (Your friends, family)
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13. It’s All About How You Act
• Top reasons for acting sustainably:
• Drives innovation
• Grows revenues
• Started as risk management platform; now a growth platform
• Avoid shareholder resolutions
• Improve business efficiency
• Capture bottom-line cost reductions
• Eliminate/reduce visits from regulators
• Focus on value chain – how you impact external environment
• Increased transparency up and down supply chain
• To sell something green, you have to sell something
of value to your customers
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14. What’s At Stake?
• Profits
• Customers
• Public support
• Competitiveness
• Reputation
• Trust and credibility
• Risk management
• License to operate
• Opportunities for innovation and growth
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15. Why Sustainability Belongs on the Balance Sheet
• Capital markets need information – at the right time –
that is clear and trustworthy
• The financial crisis raised fundamental questions
• Were companies and markets as transparent as they could have
– or should have – been?
• Was there systemic risk that was masked?
– What were the warning signs that were missed and why?
– Could more transparent and complete reporting have connected
the dots sooner?
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16. Investors Paying Attention More and More
• Proliferation of ratings and rankings
– DJSI, CDP, Goldman Sachs, Bloomberg, Maplecroft
• Analysts and investors seeking more ESG data, not less
• Lack of standardization of surveys, methodology
– Resource intensive, comparability challenging
• The birth of the GISR
– Understanding what is being measured and why
– Bring convergence around core principles, content
• How material is performance to financial results?
– The ROI of sustainability
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17. Nonfinancial Performance Tied to Financial Health
• Taking holistic view allows you to integrate risk,
corporate governance and sustainability into the
strategic & operational management of the organization.
• This alignment of priorities demonstrates how your
strategy has responded to material issues.
• Value creation doesn’t come just from within; it is
influenced by:
– The external environment;
– The relationships that we have; and,
– The availability, quality and affordability of management
resources, such as financial and human capital.
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18. AEP’s Material Issues Defined
• Issues material to our sustainability are
those that:
– Have or may have significant impact on the
company’s finances or operations.
– Have or may have significant impact on the
environment or society, now or in the future.
– Can substantially influence the assessments,
decisions & actions of stakeholders and
shareholders.
We track material issues & sustainability performance with the material
risks monitored by the company.
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19. Lessons
Learned
“If you can’t find a path with no obstacles, it probably
doesn’t lead anywhere.”
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20. Lessons Learned Along the Way
• Support from the top – CEO, Board of Directors – critical
• Transparency is painful at first
• Be honest and candid – don’t beat around the bush
• Don’t try to do it all at once – especially GRI – better to start small
• Define sustainability for your organization
• Communicate often to internal and external stakeholders
• Think about what is relevant for your stakeholders
• Stakeholder engagement vital
– Informs goal-setting and decision-making around business strategy
– Builds credibility, trust
– They know when you’re being forthcoming or evasive – you can’t hide
– Leads to collaboration, partnership
– Use a third party facilitator for stakeholder engagement
• Listen with positive intent
– Don’t assume anything – negative or positive
• Get an external sounding board
• Audits
• Show me, don’t tell me!
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21. You Need A Strong Foundation & Clear
Expectations of Performance
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22. Questions?
Sandy Nessing – Managing Director, Sustainability
smnessing@aep.com
Twitter: @Watts4U
www.AEPsustainability.com
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