Pinnacle West Capital: Link GHG Emissions to Executive Compensation
BE IT RESOLVED: Shareholders request that Pinnacle West Capital’s Human Resources Committee prepare a report assessing the feasibility of linking executive compensation metrics to the accomplishment of Paris-aligned greenhouse gas emission reduction objectives. The report should be prepared at reasonable cost and omit proprietary information.
WHEREAS: The 2015 Paris Climate Agreement states a goal to limit the increase in global temperatures to substantially below 2 degrees Celsius. Successfully mitigating the devastating impacts of climate change on humanity, ecosystems, and the global economy requires every corporation to reduce climate emissions related to its actions. Investors are concerned not only about climate risk to the individual companies they hold, but also the economy-wide risk of climate impacts and the associated harm to investors’ portfolios.
The Intergovernmental Panel on Climate Change “Special Report on Global Warming of 1.5 C” details that to avoid the worst impacts of climate change, we must limit warming to 1.5 degrees Celsius. To achieve this goal, 70-85 percent of electricity demand must be met by renewables by mid-century, with net zero carbon emissions achieved globally.
The long-term interests of Pinnacle West shareholders are best served by encouraging a focus on greenhouse gas emissions reductions. The power sector has an urgent role to play in decarbonization. Companies unprepared for technological disruptions from the energy transition are at risk of losing their largest customers, their social license, lagging peers as renewable energy and storage costs drop, and increasing the risk of stranded assets.
Pinnacle West has issued a carbon intensity target, but this target does not prevent absolute growth in the Company’s greenhouse gas emissions. Pinnacle West’s available disclosures demonstrate conflicting action and policies including a concerning proclivity for fossil fuel natural gas infrastructure development, artificial caps on renewables in its Request for Proposals, and continued spending to block renewable energy policy in Arizona. These discrepancies leave investors unable to assess whether Pinnacle West is sufficiently mitigating climate risk.
Executive compensation is an effective way to incentivize achievement of performance targets. Pinnacle West should set relevant metrics in its executive compensation policy to assure investors that management is effectively setting and implementing policies aligned with achieving Paris Goals. While determining specific metrics for executive compensation rests within the discretion of the Board and its compensation committee, a senior executive compensation policy incorporating consistent progress on carbon emission reductions will align and position the company to thrive in a future impacted by climate change. Utility company peers such as NiSource have adopted similar policies in which a portion of long-term equity incentives are tied to progress on publicly disclosed emission reduction targets for the CEO, executive officers, and approximately 70 individuals. Xcel Energy has also demonstrated progress through instituting a link between carbon reduction and compensation. Investors believe that a similar policy would provide assurance that our company is adequately addressing climate change business risks.