Utility environmental commitments and shareholder performance

ABSTRACT

Investor-owned utilities play an essential role in combating climate change. In 2022, many large United States utilities have made bold commitments to achieve carbon neutrality, often as soon as 2045. This paper explores the United States-based large-cap investor-owned utilities’ price-to-earnings valuations in relation to their respective environmental commitments. The paper addresses the research question of whether shareholders reward these utilities by having carbon-neutral goals with enhanced premiums expressed through higher price-to-earnings multiples.

The paper employs statistical techniques to compare the differences based on environmental, social, and governance scores relative to the respective utility's carbon-neutral goals; ultimately, this study finds that today (in 2022), there is no such statistically significant enhanced premium in stock valuation. Future studies on this topic between company goals may be more challenging to measure as more utilities embrace carbon-neutral goals both by mandate and by choice. Pressures from the investment community and public interests have led to widespread commitments espoused by utilities. A stock premium construct that financially rewards utilities for environmental goals would likely result in enhanced efforts by utilities for these commitments.

Further study is warranted to explore shareholder premiums and investor returns concerning environmental commitments. Additional research may confirm the extent to which for-profit utilities pursue environmental actions based on public and private self-interests. Public policies encouraging and rewarding utilities for setting and achieving environmental goals could support carbon neutrality and decarbonization. Ultimately, this study enhances the understanding of financial performance implications of environmentally conscious firm goals in the utility industry.

KEYWORDS:

• Utility carbon neutral commitments
• U.S. publicly traded utilities
• U.S. energy policy
• environmental concerns and stakeholder theory
• utility financial performance
• utility decarbonization

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 https://www.morningstar.com/stocks/xnys/ugi/valuation

2 https://finance.yahoo.com/quote/NEE/sustainability?p=NEE

3 https://www.multpl.com/s-p-500-pe-ratio/table/by-year

4 https://www.gurufocus.com/etf/VPU